This operation has been cancelled due to restrictions in effect on this computer. Please contact your systems administrator

Here is our environment:  Windows Server 2008 x86 SP2 Terminal Server running Citrix XenApp5.0 with Office 2007 installed.  We have a Group Policy to restrict users from access the server's C:\ drive.  When our users open or save a Microsoft Word, Excel, etc. document they are presented with the following error.  "This operation has been cancelled due to restrictions in effect on this computer.  Please contact your systems administrator."  When our users click on the OK button it allows them to open or save the document.    If I remove the restriction to C:\ from our Group Policy, then everything is working fine.  Please tell me how to fix this problem. Thanks.