Reviving this one yet again. I think I can see what the issue is now. Logging on as a student opening MS Office 2010 Word then going to Trust Centre and looking at Trusted Locations I can see that the student is not picking up his home drive as a trusted location. Trying to add it for him brings up a message The remote or network path you have entered is not allowed by your current security settings.
We are a Server 2008 Domain with a mix of XP Pro and Windows 7 Pro clients. This particular client is the latter. Oddly it’s not happening on all the clients nor is it the case with the effected user on another client, and it's only Word that it happens in?
Tried using machine policies to trust the whole server?