You just need to add the user declaration towards the top of the settings file. I had the same problem as you when I first tested it... but a little mucking around I figured it out! :)

Here's my (working) settings.json:

{
  "ip": "127.0.0.1",
  "port" : 8000,

  "dbType" : "mysql",
  "dbSettings" : {
    "user"    : "etherpad",
    "host"    : "localhost",
    "password": "8b2b02d8f53bb767f5adb5e44a9a085c",
    "database": "etherpad"
  },
  "users": {
    "admin": {
      "password": "changeme1",
      "is_admin": true
    },
    "user": {
      "password": "changeme1",
      "is_admin": false
    }
  },

  "defaultPadText" : "Welcome to TurnKey Etherpad Lite!\n\nThis pad text is synchronized as you type, so that everyone viewing this page sees the same text. This allows you to collaborate seamlessly on documents!\n\nRelease notes: http:\/\/www.turnkeylinux.org\/etherpad\n",

  "requireSession" : false,
  "editOnly" : false,
  "minify" : true,
  "maxAge" : 21600000, // 6 hours
  "abiword" : null,
  "loglevel": "WARN"
}

I tested TKL EtherPad v13.0rc3 but I assume that would apply to v12.1 too.

Also out of interest do you think that the admin interface should be enabled by default? Is it generally something that many users would want? What value does that add do you think? Please excuse my ignorance, I've never really used EtherPad....

i am unable to see my plugins on plugin manager on etherpad admin, also when i try to install plugin from command line i get the following error.

npm ERR! Error: Hostname/IP doesn't match certificate's altnames
npm ERR!     at SecurePair.<anonymous> (tls.js:1379:23)
npm ERR!     at SecurePair.EventEmitter.emit (events.js:92:17)
npm ERR!     at SecurePair.maybeInitFinished (tls.js:982:10)
npm ERR!     at CleartextStream.read [as _read] (tls.js:469:13)
npm ERR!     at CleartextStream.Readable.read (_stream_readable.js:320:10)
npm ERR!     at EncryptedStream.write [as _write] (tls.js:366:25)
npm ERR!     at doWrite (_stream_writable.js:223:10)
npm ERR!     at writeOrBuffer (_stream_writable.js:213:5)
npm ERR!     at EncryptedStream.Writable.write (_stream_writable.js:180:11)
npm ERR!     at write (_stream_readable.js:583:24)
npm ERR! If you need help, you may report this *entire* log,
npm ERR! including the npm and node versions, at:
npm ERR!     <http://github.com/isaacs/npm/issues>

npm ERR! System Linux 3.10.10
npm ERR! command "/usr/bin/node" "/usr/bin/npm" "install" "ep_*ep_desktop_notifi      cations*"
npm ERR! cwd /opt/etherpad/local/etherpad/etherpad-lite
npm ERR! node -v v0.10.25
npm ERR! npm -v 1.3.24

Please see below the settings of my settings.json

/*
  This file must be valid JSON. But comments are allowed

  Please edit settings.json, not settings.json.template
*/
{
  // Name your instance!
  "title": "Etherpad",

  // favicon default name
  // alternatively, set up a fully specified Url to your own favicon
  "favicon": "favicon.ico",
 
  //IP and port which etherpad should bind at
  "ip": "0.0.0.0",
  "port" : 9001,

  // Session Key, used for reconnecting user sessions
  // Set this to a secure string at least 10 characters long.  Do not share this value.
  "sessionKey" : "",

  /*  
  // Node native SSL support
  // this is disabled by default
  //
  // make sure to have the minimum and correct file access permissions set
  // so that the Etherpad server can access them

  "ssl" : {
            "key"  : "/path-to-your/epl-server.key",
            "cert" : "/path-to-your/epl-server.crt"
          },

  */

  //The Type of the database. You can choose between dirty, postgres, sqlite and mysql
  //You shouldn't use "dirty" for for anything else than testing or development
  "dbType" : "dirty",
  //the database specific settings
  "dbSettings" : {
                   "filename" : "var/dirty.db"
                 },
                 
  /* An Example of MySQL Configuration
   "dbType" : "mysql",
   "dbSettings" : {
                    "user"    : "root",
                    "host"    : "localhost",
                    "password": "",
                    "database": "store"
                  },
  */
 
  //the default text of a pad
  "defaultPadText" : "Welcome to 92Trade collaborative pad.\n\nThis pad text is synchronized as you type, so that everyone viewing this page sees the same text. This allows you to collaborate seamlessly on documents.\n",
 
  /* Users must have a session to access pads. This effectively allows only group pads to be accessed. */
  "requireSession" : false,

  /* Users may edit pads but not create new ones. Pad creation is only via the API. This applies both to group pads and regular pads. */
  "editOnly" : false,
 
  /* if true, all css & js will be minified before sending to the client. This will improve the loading performance massivly,
     but makes it impossible to debug the javascript/css */
  "minify" : true,

  /* How long may clients use served javascript code (in seconds)? Without versioning this
     may cause problems during deployment. Set to 0 to disable caching */
  "maxAge" : 21600, // 60 * 60 * 6 = 6 hours
 
  /* This is the path to the Abiword executable. Setting it to null, disables abiword.
     Abiword is needed to advanced import/export features of pads*/  
  "abiword" : "/usr/bin/abiword",
 
  /* This setting is used if you require authentication of all users.
     Note: /admin always requires authentication. */
  "requireAuthentication": false,

  /* Require authorization by a module, or a user with is_admin set, see below. */
  "requireAuthorization": false,

  /* Users for basic authentication. is_admin = true gives access to /admin.
     If you do not uncomment this, /admin will not be available! */

  "users": {
    "admin": {
      "password": "xxxxx",
      "is_admin": true
    },
    "user": {
      "password": "xxxxxxx",
      "is_admin": false
    }
  },

  // restrict socket.io transport methods
  "socketTransportProtocols" : ["xhr-polling", "jsonp-polling", "htmlfile"],
 
  /* The log level we are using, can be: DEBUG, INFO, WARN, ERROR */
  "loglevel": "INFO",
 
  //Logging configuration. See log4js documentation for further information
  // https://github.com/nomiddlename/log4js-node
  // You can add as many appenders as you want here:
  "logconfig" :
    { "appenders": [
        { "type": "console"
        //, "category": "access"// only logs pad access
        }
    /*
      , { "type": "file"
      , "filename": "your-log-file-here.log"
      , "maxLogSize": 1024
      , "backups": 3 // how many log files there're gonna be at max
      //, "category": "test" // only log a specific category
      }*/
    /*
      , { "type": "logLevelFilter"
        , "level": "warn" // filters out all log messages that have a lower level than "error"
        , "appender":
          {  Use whatever appender you want here  }
      }*/
    /*
      , { "type": "logLevelFilter"
        , "level": "error" // filters out all log messages that have a lower level than "error"
        , "appender":
          { "type": "smtp"
        , "subject": "An error occured in your EPL instance!"
        , "recipients": "bar@blurdybloop.com, baz@blurdybloop.com"
        , "sendInterval": 60*5 // in secs -- will buffer log messages; set to 0 to send a mail for every message
        , "transport": "SMTP", "SMTP": { // see https://github.com/andris9/Nodemailer#possible-transport-methods
            "host": "smtp.example.com", "port": 465,
            "secureConnection": true,
            "auth": {
                "user": "foo@example.com",
                "pass": "bar_foo"
            }
        }
        }
      }*/
    ] }
}

Can anyone help me please