Turns out the problem is with Spam Karma 2.2r3. It was letting all comments through without stopping them for moderation. Surprising no one else has experienced this issue.
Noticed type-o: Recently upgraded to wordpress 2.0.2 now the comment moderation function is not working, within options-discussion.php the box is indeed checked where an administrator must approve comments before they post – although comments are posting without moderation. Also happen to be using the latest version of Spam Karma 2.2 r3.
