Problem with synchronizing offline files

I have several laptop users whose OS is W2000. I have their My Docs mapped to their network folder, enabled offline files, have them synch on login and log off and also set to be encrypted. The problem arises when they are logged into the network while in the office; any new files made are not marked for synchronization. I have changed some settings to troubleshoot and found that when I take off encryption that the synchronization then occurs. These users are working with confidential information and need both synched and encrypted for HIPAA. I have not found any WinXP users to have this same problem. Any thoughts othen than upgrading to XP?