Adding another 2003 server to a 2003 domain

I am at a loss as to explain why the following is happening, but I'll do my best to describe my problem.

I have a site that is currently running at Windows 2003 server hosting a domain. I am trying to add another server to the domain but at first it was telling me that i needed to update the schema as its not currently supported and I would need to run adprep on the existing domain controller to be able to add it.

I checked the domain functionality and forest functionality levels and discovered that it was operating at Windows 2000 functionality. I then upgraded the functionality to Windows 2003 as there are no computer on the network that are lower than windows 2000, I even restarted the computer to make sure it was to take effect. After the restart I tried again but still the same problem telling me that the schema was not supported and that I would need to run adprep in order to add the server to the domain.

At this point I got the CD for the new server and loaded into the existing server, browsed to the CD from a command prompt and ran the adprep command with /domainprep and /forestprep. After it ran it told me that nothing needed to be updated and that the information was already there. This is were I cannot think for the life of me as to what would be causing the problem so any help would be greatly appreciated.

Server 1: Windows 2003 SP1 - existing domain controller and only one on the network
Server 2: Windows 2003 R2 - wanting to add this one to the current domain