What is the difference between Windows Server 2003 and Windows 7 Clients roaming profiles and folder redirection? Are they mutually exclusive of each other, or do you need roaming profiles to use folder redirection?
They are not mutually exclusive, you can use one, the other, or both. Although it can be advantageous, in certain configurations, to use both in tandem.
A Roaming Profile refers to storing the user's profile in a networked location which will roam with their logon sessions of different computers.
Folder Redirection is simply the redirection of specific per-user folders (e.g. Desktop, Documents, AppData) to a different location. This location is usually, but not required to be, on the network.
You can use them together.
With roaming profiles, Windows clients download the whole profile to disk and use it from there, on logout they upload it to the server.
Folder redirection redirects parts of user profile to network folders.
The difference is: roaming profile will make log in and log out slower while folder redirection will make access to files slower in general (the amount of slowness is very much dependent on your architecture).
AFAIK you can't place the root of user profile on network share, so NTUSER.DAT won't be uploaded to server -- making all program settings local.
What I usually do, is make all profiles roaming and make My Documents redirected folder. You may want to redirect Desktop too.