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Server 2008 GPO Preferences can not start remote registry service. Error 1079

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I am trying to get a service to start on windows XP machines that have the preferences client side extention installed, but when I configure the policy, and try to manually start the service it gives me the 1079 error.  I even put in NT AUTHORITY\LOCAL SERVICE with no password in as the login ID and it still does not let me start the service.  If I go to the service and use NT AUTHORITY\LOCAL SERVICE with no password manually and start it, it will work.  I don't know what I am doing wrong.

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