As stated in this blog there's an issue with WDS and server 2008 where clients don't join the domain. I think it's to do with the "DoOldStyleDomainJoin = yes" setting in the ristndrd.sif file but i'm not sure if there is another way to set it so you don't have to downgrade your encryption level.

Anyone know of a way so you don't have to set "Allow cryptography algorithms compatible with Windows NT 4.0 " in GPO?