Yep, the US does recognize dual citizenship. My sister and I had to specify, at some point (age? specific year? I forget!), whether we wanted to maintain dual citizenship, relinquish our US citizenship, or relinquish our Canadian citizenship. I'm not sure why - I think if you were born before a certain year (I want to say 1979...) you were allowed to keep dual citizenship. We both opted to keep the dual citizenship, and never gave it much thought after that. I do recognize that having citizenship (in ANY country) does come with obligations and responsibilities, but I guess at the time, I was too young to understand that, and my parents never thought to look into it any further. Hooray for the media, or I would likely never have known about the taxes.
The law is pretty clear - if you are an American citizen, living abroad, you are required to file an American income tax return. It doesn't make any difference how long you lived in the USA - if you hold American citizenship, you have to file the return. There is an agreement in place, with Canada, anyway, to protect folks from having to pay double the taxes, but over a certain amount, that is exactly what ends up happening. For once, making less money is a good thing.