From my understanding (I can't believe I"ve really taken the time to research this issue), the lawsuit conceded he was born in Hawaii.
The lawsuit isn't whether he was born in Hawaii it's more so if he had british citizenship at birth.
But unlike many of the lawsuits regarding Mr. Obama's citizenship -- which claim he really was born on foreign soil -- Mr. Donofrio's case concedes that Mr. Obama was born in Hawaii but says he still held foreign citizenship at birth.
"Since Barack Obama's father was a citizen of Kenya, and therefore subject to the jurisdiction of the United Kingdom at the time of Senator Obama's birth, then Senator Obama was a British citizen 'at birth,' just like the framers of the Constitution, and therefore, even if he were to produce an original birth certificate proving he were born on U.S. soil, he still wouldn't be eligible to be president."
Kenya was British East Africa until it received its independence in 1963.