I've tried it both joined/disjoined to the domain but get the same error. The logs show the error is related to the sidebar somehow:
Code:
2010-03-18 09:14:13, Error SYSPRP WindowsSideShow: Failed to get task folder (0x80070003)
2010-03-18 09:14:13, Error [0x0f0082] SYSPRP LaunchDll:Failure occurred while executing 'C:\Windows\System32\AuxiliaryDisplayClassInstaller.dll,WindowsSideShow_Sysprep_Generalize', returned error code 31
2010-03-18 09:14:13, Error [0x0f0070] SYSPRP RunExternalDlls:An error occurred while running registry sysprep DLLs, halting sysprep execution. dwRet = 31
2010-03-18 09:14:13, Error [0x0f00a8] SYSPRP WinMain:Hit failure while processing sysprep generalize internal providers; hr = 0x8007001f
2010-03-18 09:19:28, Info [0x0f004c] SYSPRP WaitThread:Exiting spawned waiting thread
2010-03-18 09:19:28, Info [0x0f0052] SYSPRP Shutting down SysPrep log
Oddly the sidebar seems to work fine (not that I have any gadgets running anyway)