Your user should go to Extended pane in Reader to apply a digital signature to the Reader extended PDF.
The user is probably trying to use the Sign pane in Reader which has some options disabled according to the document permissions. The new Sign pane in Reader is an integration with Adobe EchoSign service in the sense that it enables an end user to fill-up documents, electronically sign and then send a PDF document, without having the need to print them. The Sign pane provides two options to the user:
1 - Fill and Sign: Here the user can place text using 'Add Text'. Users can add arbitrary text to a PDF, eg. in documents where Reader cannot interact with the document even though the document looks like a form, in forms where user cannot save the filled-up form. In such cases the only option a user has is to print the form, fill it and then fax or fedex the filled up document to the author or scan it and send it electronically. Using the Sign pane in Reader, a user can add text and also electronically sign the document (this is not the same as digital signature) using an image of their signature. He can create a 'signature' from a scanned paper which has user's handwritten signature and place it on the PDF.
2 - Send for Signature: Here the user is sent to EchoSign for collecting signatures from others.
Hope that helps.