Outlook unable to create and save .fav

When one of my users is opening Outlook and getting these errors. 1. An error occurred in the shorcuts folder(fav). Outlook will recreate the default folder shorcuts. When I click “OK” it does not successfully create the shorcut and displays this message next. Outlook was unable to create shorcuts folder make sure there is sufficent disk space and that the file is not marked read only. Another attempt will be made after a change or when you exit. We are running Exchange 5.0. I have verifiedthat there is plenty of disk space on the machine as well as the server running exchange, I have also verified that the file is not marked read only! Any clues and what should I get this working properly. Thanks