RPC server unavailable when adding local administrators to domain laptop

I have a Windows XP computer on a Windows 2003 domain. This is a fresh install of vanilla XPP with Office 2007 and is fully patched. The computer joins the domain flawlessly over a VPN and the DNS on the VPN is set to the domain DNS server. Both the DNS server and the DC are hard coded in the hosts file. The problem is I get "The RPC server is unavailable" when I attempt to add any domain user to the local administrators group. Any thoughts?
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Are you logged on as a local or domain user? I must admit it does sound DNS type issue, can you resolve names OK from the command line?

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Windows Server 2003

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