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I'm replacing all the old windows XP machines in my network to new machines running windows 7.
I hoped it would be an easy task, but apparently it isn't: all the machines I've installed (using WDS) are repetitively showing peculiar errors and going into system restore.

The DC is a Windows Server 2008 R2 machine, and so are the DHCP, DNS and WDS services.

For example: all the machines have shown the error: filename or extension too long when trying to install new programs locally, when trying to open c:\windows\System32\systempropertiesadvanced.exe, or when trying to use WMI, or sysinternals tools such as procmon.
There are probably other programs that will fail in this fashion, but I didn't try to run them.

Moreover, all the machines tend to go into system restore once every 2-3 days - and I haven't been able to ascertain why. Resetting a computer after encountering the first problem will get me to system restore 100% of the time. I can't remember if it ever happened without the first symptom, though. My guess is that this is either a problem with the image that I have installed or with the group policy that might have XP stuff Win7 just doesn't like.

I've tried to run GPUpdate /force on a newly installed machine and restarting it, nothing happened (though this happened after removing some GPOs that I deemed unnecessary).

I've tried installing a machine from a newly captured image and joining the domain - the error lived on (the machine joined the domain before I removed those GPOs, but the error happened after I removed them).

Any advice on how to solve this mess?

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I'm not aware of any GPO settings that would cause your symptoms when applied to Windows 7 machines, vs Windows XP machines so I'm leaning more toward something with the image. All other components of your network should work fine with how you've described it.

To troubleshoot, I would start by wiping a machine and installing from scratch using the Windows 7 disk. Create a computer object in the Computers container in AD, so that only policies applied at the domain level are applied when you add it to the domain. If you still get the same issues after adding it to the domain, start looking at the what policies are applied at your domain level and the settings within those.

If you don't get the errors, then move the computer object in AD to where it should be, and where all GPOs necessary will be applied. After that, make sure you don't get the same errors. If you do, you could start investigating the settings in the other GPOs that got applied.

You could also report back with the event ids and sources of the errors on the workstations.

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