I have turned on debug mode to look at K2 queries running.Weird thing is if I add a user to a group and watch the queries in admin i dont see a single insert query. I was expecting to see some activity....Is there a new limit to query output in Joomla? Where are the queries that k2 uses to update/insert data ?any one shine a light here?

try grep -r -i insert into ./ from the directory you think the code is generated in and it may pop up for you.
It may be insert into #__{k2TableName}
You may be able to isolate where the queries are supposed to come from in the codebase

In general those queries are in the models that are in the model directory. The Joomlaworks guys have done a real nice job trying to conform to the MVC pattern.