App-V duplicates system32 folder

I have sequenced Office 2010 Pro Plus today using the App-V Office 2010 Kit on a Windows XP (dutch) computer with Sequencer 4.6. All seems to work fine when I start one of the Office 2010 virtual applications on a test computer.
When I reboot the computer, it cannot start. When i check the C:\Windows folder using a bootcd,  I notice that a duplicate system32 folder exists. One System32 and one system32 folder!!! When I delete the system32 folder and restart the computer, everything
works fine again, but as soon as I start an Office 2010 virtual app, the system32 folder is duplicated.
This also happens when I start a virtual application called ACDSee. Other virtual applications do not cause this problem.
What goes wrong?

A scenario like this can happen when we have a convergence of many elements but the root centers around the fact that the NTFS file system preserves case. While the Win32 API does recognize the case preservation, it does not consider the case-sensitivity
which is why you cannot create two files or directories that differentiate only by case.
However, other subsystems/APIs may - esepcially the POSIX subsystem which many open source solutions leverage. Are you by chance running any software such as Hummingbird/OpenDoc? Where this happens is that when this software is installed locally, there becomes
a creation of this directory upon the launching of just about any virtual application (it all depends on whether the application uses VFS mappings to system32 in this case.)
Check and make sure this key is in place:
Key: HKEY_LOCAL_MACHINE\SYSTEM\CurrentControlSet\Control\SessionManager\kernel
Value Name: obcaseinsensitive
Value: 1 by default
Usually this may be set to 0 when these applications are installed. Reverting it back to its default could fix your issue.
Steve Thomas, SSEE, MSFT
App-V/MED-V/SCVMM/SCCM/AppCompat
http://madvirtualizer.wordpress.com
The App-V Team blog: http://blogs.technet.com/appv/
The MED-V Team Blog: http://blogs.technet.com/medv
The SCVMM Team blog: http://blogs.technet.com/scvmm/
“This posting is provided "AS IS" with no warranties, and confers no rights. User assumes all risks.”
Steve Thomas, SSEE, Microsoft App-V/MED-V/SCVMM/SCCM/AppCompat http://madvirtualizer.wordpress.com/ The App-V Team blog: http://blogs.technet.com/appv/ The MED-V Team Blog: http://blogs.technet.com/medv The SCVMM Team blog: http://blogs.technet.com/scvmm/

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