Encrypt Offline Files - Access Denied

Hi,

I've got a laptop with XP Professional on it. I use it to connect to
our small corporate LAN. I log in with a domain user account (W2K3
domain). I have a mapped drive to a DFSR share on the server with our
main files on it. I like to have a copy of these files offline when I
travel.

So, I've set up offline files for the drive, and it synchronizes fine.
For security, I then changed the folder options for the offline files to
"Encrypt offline files to secure data". It fails with an "Access
denied" message for each and every file. When I turn off the "encrypt
offline files", it synchronizes again. Group policies are unlikely to
have been modified from the defaults, since I don't really know what I
am doing with them, and tend to leave them alone. The files are
unencrypted on the server.

Where should I start looking?

--
Cam