I just mocked this up with a Windows 7 SP1 client to make sure my "gut" feeling was correct, and it was.
My settings were:
Basic - Redirect everyone's folder to the same location
Redirect to the following location
Grant the user exclusive rights to My Documents - Unticked
Move the contents of My Documents to the new location - Ticked
Policy Removal - Leave the folder in the new location when policy is removed
Changing the server name in the GPO causes the Folder Redirect Client Side Extension (CSE) to copy all the files from the old folder to the new folder, even if the files exist in the destination path. I verified this by throwing the same 10GB test file in both the new and old locations and watching the client take several minutes to logon, stuck at "Applying Folder Redirection policy..."
In the past, I've made these types of migrations work by creating a new Folder Redirection GPO that I can apply on selectively using security filtering so that I can test w/o harming existing users. I move the files for my test users from the old location to the new location, put them in the group that allows the new Folder Redirection policy to apply, then logon and verify that the new redirection "takes".
This method is certainly a pain because you need to coordinate with users to be sure they're not logged-on and using their old folder when you move their files, but I wasn't able to come up with a good alternative that didn't result in users sitting waiting for the CSE to copy files. My experience, when users are required to wait, is that some fraction of the users will power-off the PC, increasing the risk that they're going to end up with a screwed-up non-deterministic mess. Yay, users!
I can confirm that when the "Move the contents of My Documents to the new location" box is unticked when the GPO first applies to the user subsequent changes to the path do not cause the CSE to copy the files to the new folder.
I can also confirm that when the "Move the contents of My Documents to the new location" box was ticked when the GPO first applied to the user, but subsequently is unticked at the same time that the path is changed in the GPO the CSE does not copy the files to the new folder.
I'm not certain that this behavior has always been this way, and I'm unwilling to mock it up with Windows XP to see.
If Offline Files is in play, too, you may want to have a look at the blog entry How to change the File Server Share for Folder Redirection in a way that the W7 Client can still access the Data on the Users Share and not to have the complete Data synced over the wire?, which describes using the
FolderRedirectionEnableCacheRename registry value to allow the offline copy to be "renamed" instead of being resync'd across the wire.
I compared the profiles before / after unticking the "Move the contents of My Documents to the new location" box and I am not seeing that it's cached anywhere in the registry. It appears that the CSE is checking this value's state in the SYSVOL every time it applies the GPO. That's also nice.