Well W7 thinks start menu redirection is working - the event viewer shows:
"Successfully applied policy and redirected folder "Programs" to "\\server1\desktops\staff\start menu\Programs".
However the use gets neither the start menu shown above, nor the local default user version either.
I'm having the exact same problem as you and I really think it relates to the profile being used.
If I log on as a student and let it create a new profile, deskstop and start menu redirection doesn't work. If I create a local user on the machine (thus creating a profile) then log on as Admin and copy that profile to the profiles directory on the server, assign the user that profile...start menu redirection works (but not desktop).
According to Microsoft, this is the only way to customize a user profile in Windows 7.
How to customize default user profiles in Windows 7
I haven't managed to do it this way and I think most people haven't but I wonder if this is causing the problems.
For the record to get Windows 7.0 working (or should I say try!) we upgraded 1 X 2003 server to 2008 Enterprise. Did all the forest prep, schema update, etc and have all of the options in Folder Redirection. I've even compared settings with people who have it working perfectly but no joy for us making me think it is profile related. We're also getting permission errors as soon as we launch Word (cannot save to global template, etc) even for me (Domain Admin) with Admin rights tot he computer?
If you get it resolved, please let me know what you did and vice versa.
I seem to have found a solution to this - for the start menu problem anyway.
In our user policies the policy setting:
'Remove Users folders from the Start Menu'
is set to Enabled for our XP clients. Changing this to Disabled makes it work in Windows 7
I haven't tested the impact of this on XP, as I changed a test Group Policy which only impacts the Windows 7 test PCs
Now, onto the rest of the problems!