GPO Prefferences network drive mapping fails on Windows 7

I have installed 2 servers running Windows 2008 R2 with DFS.
One server has the "Groups" namespace
Second server has the "Users" namespace.

The shares are made on the "Users" and "Groups" folders on drive E:
under this folders I have folders for each user (not shared) and NTFS permission set to grant permissions to specific users. So the subfolders are NOT shared.

What I am trying to do it's to map 2 netwrork drives via the GPO Prefferences.

I am mapping the drive as follows :
1 GPO for the user share \\mydomain.com\Users\%username%\
1 Gpo for the group shares \\mydomain.com\Groups\Group1\

Mapping is done via GPO Prefferences and I am doing a "Replace".

The policy works fine on Windows XP and Windows 2003 machines but it does not work on Windows 7 and Windows 2008.
On windows 7 I can see the following error on the event log :

"The user 'U:' preference item in the 'UserDrive {6E6BA6A9-909B-49E4-9DCB-4C5B27ECB054}' Group Policy object did not apply because it failed with error code '0x80070035 The network path was not found.' This error was suppressed."
"The user 'G:' preference item in the 'GroupDrive {C5A8A864-785D-4240-8AAF-C5F1848AE68E}' Group Policy object did not apply because it failed with error code '0x80070035 The network path was not found.' This error was suppressed."

I have tried to adjust the LocalMachine policy and enabled EnableLinkedConnections.
I have applied KB2194664 - http://support.microsoft.com/kb/2194664/en-us
I have removed the gPO created a new one.
I have enabled "Always wait for the network at computer startup and logon" on the local machine.

No go.

If after login I try to browse the path I can do it with no problem and I can also map the drive
via the net use command.

Even if I add the network path as \\Servername\Users\%USername%\ or \\servername\Groups\Group1 it will still not map.

If I try to map a share from a Windows 2003 server with the User Prefferences GPO , this will work just fine, no problems. Then if I disconnect the network drive shared on the windows 2003 server , this will not be mapped again.


Any help would be appreciated.