creating accounts, login failing?

Afternoon,

I'm new to the Microsoft way of doing things. I have a VM with Server 2008
R2 and the AD role. I create accounts just fine and can set the Profile
and Home Directory fields in the Profile tab to shares on another VM
with Server 2008 R2 and the file sharing role. On the second VM I have
a directory structure like this:

C:\Company\IT\Homes
C:\Company\IT\Profiles
C:\Company\IT\Shares

When I modify the permissions on these directories then update the share
permissions, the file permissions get changed. What's up with that? The
file permissions I'm using are:

CREATOR OWNER, full control, subdirectories and files
Administrator, full control, everything
Administrator, full control, everything
SYSTEM, full control, everything
Domain Users, read only, this folder

shares are Domain Users and Domain Administrators full control.

When logging in as this test user I get the error:

You have been logged on with a temporary profile.
You cannot access your files and files created in this profile will
be deleted when you log off. To fix this, log off and try logging
on later. Please see the event log for details or contact your
system administrator.

Am I doing things in the wrong order? Everything I see in the event logs
is informational.

TIA

Mike