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....