It seems like for some reason the sysvol folder isn't replicating. Check the event viewed, file replication service to see if there are any replication errors that might give us some clues. If not, to rule out any possible conflicts in the directory preventing replication, I would do this, demote the server and rename it. Using ntdsutil, remove the server from the directory. Go into AD U&C and make sure the computer account is deleted. Verify that the Domain Controller and DNS server roles are removed from the server if its a 2003 or 2008 box. Manually delete the sysvol folder (remember it should be demoted. If it's not, DON'T do this) from the C:\Windows directory. Verify that the server is no longer listed under active directory sites and services for replication. Once that's done, rename to it's old name (which will recreate the computer account in AD), and re-promote.