creating a re-usable default profile

In the past... (since windows 98, sorry, showing my age) We have always been able to do the first time logon, setup all the applications, desktop settings, IE settings, everything, with a 'profile' user. We then rebooted the machine, logged on as adminstrator and Deleted the contents of the 'default user' folder and copied that 'profile' user sub folders into the 'default user' folder. We would then reset the permissions on that, 'default user' and all the sub folders of the 'default user' folder to allow access. This way when ANY user logs into the machine all the settings are as they should be rather than having to go through them all again from the begining each and every time a FTL (first time logon) occurs. It is also very helpful when a profile becomes corrupted and you have to start over.

When I try this in windows 7 64bit I've now messed it up so that ANY new user that logs in gets an error message saying they've been logged in with temporary profile and all changes will be lost when log out. Although, all the setting seem to be there. So I'm just missing the something that tells windows 7 this new default is ok.

Can this still be done? What are the steps now? What has changed and how do we accopmlish this, at one time, simple task? {I have done this successfully with Vista 32 bit}

I have asked MS about this but I don't like their answer as they don't like us doing this.

THANK YOU very much for your reply and assistance. I do appreciate it.
I've NEVER used Sysprep, Or the 'windows' software for imaging. I've always used third party software. THIS, my question, HAS NOTHING to do with imaging or installation and I'm NOT customizing a installation. I'm only trying to edit the default profile, so that when new users login they don't have to go through and change all the settings to get windows to be usable. (i.e. folders view, translucents and pretties, etc.) I want to be able to have my default profile on a usb or network drive and just copy it to ANY machine I walk upto. Just like we've done since win98. I've been trying to accoplish this or find instructions for doing this for weeks now. MS is telling me I've got to use Unattend.xml file and WAIK. Well FINE. I've installed WAIK and THERE ARE NO INSTRUCTIONS OR ANYTHING THAT I CAN FIND on how to create this 'unattend.xml'. I've used 'windows system image manager' and looked throught the help. The fist step reads: "To create an answer file: In this step, you copy a Windows image file (.wim) to your technician computer and create an answer file." This is VERY frusterating as I DON'T HAVE or Know how to create or particularly want a Windows Image file. It seems I"m stuck every step I go to refers to another step I don't have and don't know how to do.
DOES ANYONE HAVE A STEP BE STEP SOLUTION STEP BY STEP - BEGINING TO END PROCESS For copying and reusing a 'functional' windows 7 Default user profile?

In Windows 7 it works the same as in Vista.
Do you still have a Default user in Explorer, if not you have to restore him.