I've just had a similar problem. I've added user using pure-pw useradd and get 530 Login authentication failed.
The solution was a symlink added to /etc/pure-ftpd/auth directory pointing to /etc/pure-ftpd/conf/PureDB (there is a path to file that keeps ftp users) that shows in alphabetical order before other files in auth, e.g.
cd cd /etc/pure-ftpd/auth/ ln -s ../conf/PureDB 50PureDB then ls returns:
50PureDB -> ../conf/PureDB 65unix -> ../conf/UnixAuthentication