serious hole in windows - access the local drives

We have two Terminal server farms, running windows 2000
and 2003. We have put in procedures preventing users
accessing the server's local drives using GPOs. We hide
the drives from explorer and turn off content menus
(right click), however we have found a bug where users
can actually gain access to the local drive by performing
the following 2 scenarios:

Users double click on a program group from program file
menu e.g. Microsoft applications, which then opens an
explorer window, users can then proceed to use the "up"
icon on the toolbar to select down to the local disk.

Within Word (for example) go to File - open, the open
dialogue box appears, within the File name field, type
the local drive letter e.g. c: - press the open button
and guess what the local drive is displayed.

Anyone found this bug and does anyone have a resolution.