The folder path 'Application Data' contains an invalid character

I've just completed my first deployment of Office 2003 (SP3) via Group
Policy. Everything has worked great so far with the exception of when
you start one of the Office apps. Windows Installer comes up and after
a second or two, the following error message appears:

"Error 1324. The folder path Application Data contains an invalid
character."

You click ok and then it appears one more time. You click ok again and
then the app starts and appears to work just fine.

Now, I've spent the last three hours scouring the web for anyone else
who has encountered the same issue, but I can only find semi-related
cases. All the cases I've found so far involve a different directory
(My Documents, My Pictures etc) and the problem usually is related to
HKCU\....\User Shell Folders. I've had a look in the registry on a few
machines and I can't find anything out of the ordinary (AppData is set
to "%USERPROFILE%\Application Data").

It should be noted that we do folder redirection on Application Data
to the user's home directory (via a domain group policy). If I login
as the user testuser, "echo %appdata%" in a command prompt outputs "\
\vsrv007\home\testuser\Application Data". As far as I can see, there
are no illegal characters in that path?

Edit: While typing this up, I noticed that the value in the registry
differs from what the environment variable actually contains. The
registry says "%USERPROFILE%\Application Data" but the variable says "\
\vsrv007\home\testuser\Application Data". Could this perhaps be the
cause of the problem?

Any help would be appreciated.

Cheers,
Rickard

I solved the problem. Or rather, I worked around it. Turns out it was
just my profile that was ******* up.

Cheers,
Rickard