SharePoint 2010 Term Store is Displaying SIDs instead of Display Names under the Managed Metadata Service
One of our customers got back to me about SIDs being displayed instead of Display Names in the Term Store when looking up settings for a Term Set. The behavior is intact and you're getting the expected results. However, It would be hard to maintain!
To go around it try clicking on the User Verification button next to the People Picker and it will resolve the Display Names back again. Unfortunately this is not a permanent solution, but at least you can maintain it