Dear Julin
Found the solution, after checking all possibilities...
in some how our registry got corrupted.
So the following solution although it takes some time editing worked without
the need to restart the computer.
I had to reset the following:
HKEY_CURRENT_USER \ Software \ Microsoft \ Windows \ CurrentVersion \
Explorer \ User Shell Folders
I added as instructed in the following link:
http://windowsxp.mvps.org/usershellfolders.htm
all the following keys (I had only one previously added), I left this one
and included all the missing.
AppData --> %USERPROFILE%\Application Data
Cache --> %USERPROFILE%\Local Settings\Temporary Internet Files
Cookies --> %USERPROFILE%\Cookies
Desktop --> %USERPROFILE%\Desktop
Favorites --> %USERPROFILE%\Favorites
History --> %USERPROFILE%\Local Settings\History
Local AppData --> %USERPROFILE%\Local Settings\Application Data
Local Settings --> %USERPROFILE%\Local Settings
My Music --> %USERPROFILE%\My Documents\My Music
My Pictures --> %USERPROFILE%\My Documents\My Pictures
Nethood --> %USERPROFILE%\NetHood
Personal [My Documents] --> %USERPROFILE%\My Documents
PrintHood --> %USERPROFILE%\PrintHood
Programs --> %USERPROFILE%\Start Menu\Programs
SendTo --> %USERPROFILE%\SendTo
Start Menu --> %USERPROFILE%\Start Menu
Startup --> %USERPROFILE%\Start Menu\Programs\Startup
Templates --> %USERPROFILE%\Templates
Hope this works for you too.