XP recreate local Favorites folder

[googlemad]

So I've bought a PC home from work for a member of my family and am trying to remove some of the software they won't be needing, except since My Docs was linked to a network location had to change it back to a local location and modify the various reg keys which went OK.

 

But now it is complaining the network location %USERPROFILE%\Favorites cannot be found, I've tried creating a 'Favorites' folder with no success, copying from another local profile with no success, resetting IE with no success

 

Any ideas?! The registry keys are all correct I guarantee you that!

[gjdb]

Have you checked if there are left over grouppolicies, because it sounds to me a gp is still applied.