You might see the following error in your PeopleUpdate error log and note that PeopleUpdate will not query Active Directory properly in this situation.
Exception occurred in System.Xml: '<', hexadecimal value 0x3C, is an invalid attribute character.
There are times that invalid hidden characters can get into one of the XML configuration files for PeopleUpdate and cause problems. To fix this, open each of the following files using a pure text editor like Notepad++ or TextPad to check for UTF-encoded extra characters. Do not use Notepad as it will not show all characters.
XML Files to Check
Check each of the following files in the PeopleUpdate root directory typically located at %Program Files%\WebActiveDirectory\PeopleUpdate\Configuration. You need to look for invalid hidden characters that might sneak into the file if you have modified the file directly, especially when copying and pasting from a web page or email. When you locate an invalid character, remove it and save the file then try running PeopleUpdate again to ensure the Active Directory binds work and the error goes away.