Think I finally found the answer on Microsoft’s site
Do one of the following:
Enable both “Grant the user exclusive rights to Documents” and “Also apply redirection policy to Windows 2000, Windows 200 Server, Windows XP, and Windows Server 2003 operating systems”. When both are enabled then the Synchronization Partnership is successfully created and documents are synchronized between the local profile and the home directory.
– OR –
Disable both “Grant the user exclusive rights to Documents” and “Also apply redirection policy to Windows 2000, Windows 200 Server, Windows XP, and Windows Server 2003 operating systems”. When both are disabled then the Synchronization Partnership is successfully created and documents are synchronized between the local profile and the home directory.