I found a bug report
Bug 14267 - Search does not return "contact groups" in Calendars -->attendees tab.
This isnt exactly the problem I'm having but one of the comments from a zimbra person says
Currently there is no support for groups in appointment composer. They should
have been filtered out of the 'Search' just like they don't show up in auto
complete of attendees.
Is this not a feature still in 5.0? I can't imagine this hasn't been a huge request. we have some departments here that are 50+ people and if a person has to input all 50 when filling out an appointment they're going to lynch me.