Folder redirection and group policy not functioning properly in transition to Server 2008

I am transitioning a domain from Server 2003 to 2008. We still have the old 2003 server, as well as the new 2008, operational as DC's. Recently I copied user folders over to the new server and reconfigured folder redirection through group policy (we are redirecting Desktop and Documents, with music, pictures and video following documents). Desktop redirects OK, and appears fine on client computers, but Documents creates a second set of folders under the user folder. So when the user clicks on Documents from the start menu, they get an empty folder. If they go to their personal network folder, they see two documents folders, one of which is empty and is being redirected, and the other which actually contains all the user's documents.
I did not choose the option in group policy to move folders automatically. I transferred the folders myself and then set group policy to redirect to the folder on the new server.

Another problem now is that if I go into group policy management on the new server, and view settings for the GPO, it shows that documents is set to redirect to \\server\users\%username%\My Documents. However, if I try to edit the GPO, it is set to "create a folder for each user under the root path". I change it to redirect, and click OK out of the edit window, but if I click edit again its shows up again as "create a folder under root path".
I don't know if these problems are related, but in any case I am unable to make changes to folder redirection like this.
Any suggestions would be much appreciated... many thanks in advance.