You wont be able to stop it completely, there are system files in this folder that the user must be able to read/write/create, this is just how windows 7 works. This was always there on windows xp and it was the same problem then, the only difference is that it wasn't presented to the user in quite such an obvious way.
To that end, I think your best hope now is to just hide it so the user cannot ever browse to it. You can remove it from the start menu and desktop using the usual group policies and you can remove it form the file save dialogs by doing this:
Hide User Folder on Save as Dialog Box - TechNet Forum Windows 7 Support Team - Site Home - TechNet Blogs