In my test using the scenario you described I could successfully replicate the issue. This issue seems to be caused by a bug. I have submitted a bug report to the developer regarding this issue.

I'm having the same problem. Is there a workaround for this? 

The available workaround is on the ungroup client side event handler, you will need to validate if the column element is available. If it is not available, rreturn false to invalidate the operation. This workaround will cause the error to not occur, however you will not be able to remove the hidden column group.

Here is the snippet:

<script language="javascript" type="text/javascript">
	function WebGrid1_OnColumnUngroup(controlId, columnObject)
	{
		var WebGrid1 = ISGetObject(controlId);
		return columnObject.GetElement() ? true : false;
	}
</script>

Thanks.  Do you know when the permanent fix will be available?  The users need to be able to ungroup.

Unfortunately I have no information regarding the fix availability. I will inform you if there is any update for the fix.

I just been updated regarding the ungroup issue. The fix will be available in the next hotfix release.