why is it not possible to distribute a group.?
Because only it is possible to distribute geometric objects, and a group would include other type of objects. However, we are working to allow this functionality.
How do you collapse to a single mesh. is it jus rightclicking on the tree (group) and select convert to vray proxy or.?
It is not necessary to create a proxy. Just open the group, convert one of the elements to editable mesh (if not done yet), and use Edit Geometry->Attach or Attatch List to append the other items.
Is there another way so you have flexibility to adjust the tree later on in your scene if you like. How do you do it.?
There are not restrictions to adjust the mesh once attached and assigned to Forest, but it must be an unique geometric object. In any case, you can keep a separate copy of the group and repeat the process if necessary. The Forest parameters should not change, only replace the object in the Geometry List of Forest.