Hi Joel,
you didn't state it, but it seems you're talking about IDS on Windows, right?
Also, you mentioned upgrade, but not whether this occurs on a machine that already had IDS installed (and therefor at least an informix user)?
Why all this matters? First of all, on Windows you get to choose between local and domain installation, with implications on whether plain (local) user informix or domain\informix is used / gets created (same for ifxjson user) which could both co-exist and with differing passwords; and later on it determines whether users will be authenticated by an instance locally or in the domain.
You mentioned "local Informix and ifxjson user", so I'm assuming local installation. Are you sure this is what you wanted? Or should domain users be able to connect? And could your conflict come from an already existing domain\informix user?
For the first question, yes, those users will be used in services, along with their passwords, and if a password gets renewed it also needs to be updated in the respective service (or you choose to have the service running under the system account).
Now not having a service, for the instance you're just about to create using instance manager, seems logical as you're not able to run the instance manager to completion because of this pw problem, doesn't it? You shouldn't try and create the service manually, also since there's more to creating an instance, esp. a number of registry entries.
Thus far very quickly ... HTH,
Andreas