(If you don't already have the group policy editor in an MMC window)

Start -> Run = "mmc"
File -> add/remove snapin
- [Add] -> Group Policy Editor
- Group Policy Object = "Local Computer"
- [Finish]


(now that you the group policy editor)

Local Computer Policy -> User Configuration -> Administrative Templates -> System
- Turn off Autoplay = Enabled
- Turn off Autoplay on = "All Devices"

Local Computer Policy -> Computer Configuration -> Administrative Tempaltes -> System
- Turn off Autoplay = Enabled
- Turn off Autoplay on = "All Devices"

Enjoy your Windows now behaving properly with removable media.

Now, why those same settings placed in an AD policy don't properly effect subordinate workstations; I don't know. We had to make the change on the local machines before it would take effect. Maybe the newest MS-LDAP version works properly and maybe Vista/Win7 recognize it. But for WinXP, do it quick/easy/peasy through the machine's own Group Policy snap-in.