Word 2007 Could not create work file. Check environment variable

We’re running Windows XP in an environment where every user has server space, and the My DOcuments folder is redirected to this server space. Student users don’t have access to the local hard drive of any domain workstation (faculty do). Recently one lab converted from Office XP to Office 2007. One by one, the student users start getting the error “Could not create work file. Check environment variable” when they try to open word 2007. THe program will not open once the error appears. Not all student users have been affected, but I can’t see why it would affect some and not others (all have the same GPO).

Any ideas? I hate to open up local hard drive access to all students, since it will open me up to mischief and mayhem.