Domain Profile not propagating correctly

I have been round and round with this and hoping someone out there can shed some light. This is the scenario...Have a NT 4.0 PDC at host site, have NT 4.0 member server at remote site. Users are part of power users group. Have recently refreshed 98 pc's for XP Pro at both host and remote. All pc's are identical in every way. Have legacy app that worked fine at both host and remote while on 98. Since installation of XP machines host site pc's can run app fine but somewhere along the line the permissions of the remote users are being stripped/blocked. App will run fine if users has domain admin rights. All users authenticate with the PDC at the host site. Remote pc's are set up with wins to access the domain. Error message when trying to run the app "16 Bit Window Subsystem: C:\Document....\Temp. a temporary file needed for initialization could not be created or could not be written to." Have given users full access to the app folder as well as \temp. This was not necessary at the host site. Compatability mode has been set to 98.