Here is the fix.
WORKAROUND
WARNING: If you use Registry Editor incorrectly, you may cause serious problems that may require you to reinstall your operating system. Microsoft cannot guarantee that you can solve problems that result from using Registry Editor incorrectly. Use Registry Editor at your own risk.
To work around this problem if the computer is already in this state, manually add the registry entries. To do so, use Registry Editor (Regedt32.exe) to locate the following key in the registry:
HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Windows\CurrentVersion\Explorer\DocFolderPaths
Add the following registry value, and then quit Registry Editor:
Value name: user name
Data type: REG_SZ
Value data: user profile\My Documents
Replace the user name and user profile environment variables with the literal values for each user who logs on to the computer.
NOTE: In each user's My Documents folder and subfolders, open the Desktop.ini files and modify the Owner value under the "DeleteOnCopy" section to match the user name.