Steps to recreate the issue... (Windows 2008 Server - DC, and Windows 7 as the client box)
1) Create a new user in the domain.
Example: user1
2) Set the user's "Remote Desktop Services User Profile" to a network path.
Example: \\myserver\profiles\bullpin
3) Logon with user1 to the remote desktop (SERVER_A), then create a new shortcut to a web page.
Example: http://google.com -> Named: Google
4) Logout with user1.
5) Create a new user in the domain.
Example: user2
6) Set the user's "Remote Desktop Services User Profile" to the same network path.
Example: \\myserver\profiles\bulpin
7) Logon with user2 to the remote desktop (SERVER_A). YOU SHOULD GET AN ERROR!
ERROR: "The Group Policy Client service failed the logon. Access is denied"
Update:
My answer below fixed the issue and everything seemed to work fine. Now I'm looking to find out how can I avoid this in the first place? Without having to change permissions while the error is still up (in the 30 seconds is lasts). Can I change the key's permissions before the user tries to log on?
Note: If I have to load the profile in the hive under HKEY_USERS manually please explain how.
Thanks!