break the inheritance from
parent site & give edit permission  for that list

The inheritance is broken.
I need the user group to edit only their own items.
I need the manager group to edit everything.

You can use event receivers to cancel the updates done by any user on other
user's items except manager.

There is a sharepoint  permission product which may be helpful to you.
With its help, you can:
Firstly, assign permissions to all items separated from list
permission settings
Secondly, let ITEM-RELATED users or groups have permissions to each
item
Thirdly, assign read or edit permissions to columns

For further information, you can visit
www.sharepointboost.com/permissionboost.html

What part of the country are you in?

I may have a solution for you but I don't want to be considered SPAM.

Just reply to me when you get a chance and I'll tell you what I'm talking about.