Invalid Current Directory

I am just beginning to use the built in user groups. I removed a user from the administrators group and gave them access to the following: account operators, backup operator and server operator. When they logged on locally to the PDC they get a plain blue screen. When I created a new user and tested I received the following message: nddeagnt.exe – Invalid Current Directory:
The process cannot switch to the startup current directory c:\. Select OK to set current directory to C:\winnt or select cancel to edit. I received two more message blocks with the same invalid current directory for setup.exe and syncapp.exe. Clicking on OK did not help. Can someone explain how I can resolve this? Thanks.