Why do all users have default set paths using system account folders?

I have been trying to diagnose an  issue with an application when I noticed that my test user had most of its paths set to a system profile..

So I deleted my test user profile and logged in so it will create a new user profile.  It did it again.  Most of the paths are set to a SYSTEM user profile.  I tried several other users allow them to create new profiles and they all have the same issue.

I moved the machine into a different OU with no GP applied and the issue is still happening.  Here is an example of cmd->set for a normal user.. this is not the system profile, but lots of the variables are set to that for some reason.

ADMINTOOLS=ADMINTOOLS
ALLUSERSPROFILE=C:\Documents and Settings\All Users
APPDATA=C:\Users\xxxxx\AppData\Roaming
CACHE=C:\Documents and Settings\SYSTEM\Local Settings\Temporary Internet Files
CDBURNING=C:\Windows\system32\config\systemprofile\AppData\Local\Microsoft\CD Burning
COMMONADMINTOOLS=C:\ProgramData\Microsoft\Windows\Start Menu\Programs\Administrative Tools
COMMONAPPDATA=C:\ProgramData\
COMMONDESKTOP=C:\Users\Public\Desktop\
COMMONDOCUMENTS=C:\Documents and Settings\All Users\Documents
COMMONFAVORITES=C:\Documents and Settings\All Users\Favorites
COMMONFILES=C:\Program Files\Common Files\
COMMONMUSIC=C:\Documents and Settings\All Users\Documents\My Music
COMMONPICTURES=C:\Documents and Settings\All Users\Documents\My Pictures
CommonProgramFiles=C:\Program Files\Common Files
COMMONPROGRAMS=C:\ProgramData\Microsoft\Windows\Start Menu\Programs\
COMMONSTARTMENU=C:\ProgramData\Microsoft\Windows\Start Menu\
COMMONSTARTUP=C:\ProgramData\Microsoft\Windows\Start Menu\Programs\Startup\
COMMONTEMPLATES=C:\ProgramData\Microsoft\Windows\Templates\
COMMONVIDEO=C:\Documents and Settings\All Users\Documents\My Videos
ComSpec=C:\Windows\system32\cmd.exe
COOKIES=C:\Documents and Settings\SYSTEM\Cookies
DEFAULTUSERPROFILE=C:\Documents and Settings\Default User
DESKTOP=C:\Users\Public\Desktop\
FAVORITES=C:\Windows\system32\config\systemprofile\Favorites\
FONTS=C:\Windows\Fonts\
FP_NO_HOST_CHECK=NO
x=w sdfsdfzzz
HISTORY=C:\Documents and Settings\SYSTEM\Local Settings\History
HOMEDRIVE=Z:
HOMEPATH=\
HOMESHARE=\\x.x.x\xxxxx
KMP_DUPLICATE_LIB_OK=TRUE
LOCALAPPDATA=C:\Users\xxxxx\AppData\Local
LOCALSETTINGS=C:\Documents and Settings\SYSTEM\Local Settings
MEDIAPATH=C:\Windows\Media
MSSHAREDTOOLS=C:\Program Files\Common Files\Microsoft Shared
MYMUSIC=C:\Windows\system32\config\systemprofile\Documents\My Music
MYPICTURES=C:\Windows\system32\config\systemprofile\Pictures\
MYVIDEO=MYVIDEO
NETHOOD=C:\Windows\system32\config\systemprofile\AppData\Roaming\Microsoft\Windows\Network Shortcuts\
NUMBER_OF_PROCESSORS=1
OS=Windows_NT
Path=C:\Program Files\Common Files\Microsoft Shared\Windows Live;C:\apps\watcom-1.3\binnt;C:\apps\watcom-1.3\binw;C:\Windows\system32;C:\Windows;C:\Windows\System32\Wbem;C:\Windows\System32\WindowsPowerShell\v1.0\;C:\Windows\System32\WindowsPowerShell\v1.0\;C:\Program Files\java\jdk1.7.0_21\bin\;C:\Program Files\MATLAB\R2013a\bin;C:\Program Files\Windows Live\Shared;C:\Windows\System32\WindowsPowerShell\v1.0\
PATHEXT=.COM;.EXE;.BAT;.CMD;.VBS;.VBE;.JS;.JSE;.WSF;.WSH;.MSC
PERSONAL=C:\Windows\system32\config\systemprofile\Documents\
PRINTHOOD=C:\Windows\system32\config\systemprofile\AppData\Roaming\Microsoft\Windows\Printer Shortcuts\
PROCESSOR_ARCHITECTURE=x86
PROCESSOR_IDENTIFIER=x86 Family 6 Model 44 Stepping 2, GenuineIntel
PROCESSOR_LEVEL=6
PROCESSOR_REVISION=2c02
PROFILESDIRECTORY=C:\Documents and Settings
ProgramData=C:\ProgramData
ProgramFiles=C:\Program Files\
PROGRAMS=C:\ProgramData\Microsoft\Windows\Start Menu\Programs\
PROMPT=$P$G
PSModulePath=C:\Windows\system32\WindowsPowerShell\v1.0\Modules\
PUBLIC=C:\Users\Public
RECENT=C:\Windows\system32\config\systemprofile\AppData\Roaming\Microsoft\Windows\Recent\
SENDTO=C:\Windows\system32\config\systemprofile\AppData\Roaming\Microsoft\Windows\SendTo\
SESSIONNAME=Console
STARTMENU=C:\ProgramData\Microsoft\Windows\Start Menu\
STARTUP=C:\ProgramData\Microsoft\Windows\Start Menu\Programs\Startup\
SystemDrive=C:
SystemRoot=C:\Windows
TEMP=C:\Documents and Settings\SYSTEM\AppData\Local\Temp
TEMPLATES=C:\ProgramData\Microsoft\Windows\Templates\
TMP=C:\Documents and Settings\SYSTEM\AppData\Local\Temp
UATDATA=C:\Windows\CCM\UATData\D9F8C395-CAB8-491d-B8AC-179A1FE1BE77
USERNAME=xxxxx
USERPROFILE=C:\Users\xxxxx
WATCOM=C:\apps\watcom-1.3
windir=C:\Windows
windows_tracing_flags=3
windows_tracing_logfile=C:\BVTBin\Tests\installpackage\csilogfile.log

Anyone know what may have caused this issue to happen?  I can recreate the issue on all of my lab computers I have tested.

Shell Folders and User Shell folders both have all of the variables set properly in them.  Where is CMD->Set getting its variables from and how do I set them to the proper variables?