explorer is "unable to create shortcut"

A customer's machine has a bit of a weird problem that when one tries to create a shortcut, explorer says "unable to create shortcut", leaves the window open, then if you click on 'Next' again, it says that it already exists and "do you want to over-write the shortcut". Regardless of the answer, no shortcut is created. This problem affects application installers as well, for example, when Thunderbird is installed, nothing gets created in the start menu (under 'all programs').

Also, creating a URL file (a shortcut to a website) has the same problem. I got around that one by dragging the URL from the Firefox address bar on to the desktop, but still, it's a weird problem to have. The machine shows no other odd symptoms.

I upgraded the machine to SP1 (and I left the machine running that installation), and I'll see the machine in less than a week to see whether SP1 has fixed the problem.

Thanks for the suggestion, but I had tried that already. Admittedly I'm not 100% sure whether I restarted the computer afterwards though.

Either the lnk/url fixes sorted it after a restart, or Win7 SP1. One other odd thing though was that when the shortcut files (either type) weren't created properly, it created a hidden file of that name, hence the 'do you want to over-write' message. I deleted all of those.