Background:

• DELL Optiplex 780 workstation  with new Windows XP SP3 installation
• Windows Small Business 2008 domain

Problem:

After adding the computer to the SBS domain I noticed that group policy software deployment is not processed.
Quick check in the event logs revealed following errors on startup:

Event ID: 5719
Type: Error
Source: NETLOGON
Description:
No Domain Controller is available for domain [DOMAIN] due to the following:
There are currently no logon servers available to service the logon request. .
Make sure that the computer is connected to the network and try again. If the problem persists, please contact your domain administrator.

Event ID: 1054
Type: Error
Source: Userenv
Description:
Windows cannot obtain the domain controller name for your computer network. (The specified domain either does not exist or could not be contacted. ). Group Policy processing aborted.

Group Policy Results also reported similar error:

Group Policy Infrastructure failed due to the error listed below.
The specified domain either does not exist or could not be contacted.
Note: Due to the GP Core failure, none of the other Group Policy components processed their policy. Consequently, status information for the other components is not available.
Additional information may have been logged. Review the Policy Events tab in the console or the application event log for events between 21/09/2011 20:20:20 and 21/09/2011 20:20:20.

Running gpupdate and gpupdate /force event logs didn’t reveal any additional errors.

Tried following approaches:

• Added DNS suffix for  the network connection
  Local Area Connection > Properties > Internet Protocol (TCP/IP) > Properties > Advanced > DNS
• Run ipconfig /all and double checked that all details are correct
• Used static IP address instead of DHCP

Nothing made any difference. Then tried to adding WINS server to the network connection (used SBS server IP).
Local Area Connection > Properties > Internet Protocol (TCP/IP) > Properties > Advanced > WINS
Didn’t really expect this to make any difference, but to my surprise after the reboot GP Software Installation was successfully applied! It may have been a complete confidence though as all the errors listed above were still present.

Another look into Windows event logs revealed following suspicious entries on startup:

Event ID: 4202
Type: Information
Source: Tcpip
Description:
The system detected that network adapter \DEVICE\TCPIP_{E379BB67-97F1-4DB9-B540-BD33EB89765B} was disconnected from the network, and the adapter’s network configuration has been released. If the network adapter was not disconnected, this may indicate that it has malfunctioned. Please contact your vendor for updated drivers.

Event ID: 1054
Type: Error
Source: Userenv
Description:
Your computer was not able to renew its address from the network (from the DHCP Server) for the Network Card with network address XXXXXXXXXXXX.  The following error occurred: The operation was canceled by the user. . Your computer will continue to try and obtain an address on its own from the network address (DHCP) server.

This raised a suspicion that problem is caused by a network adapter not initiating in a timely fashion on startup.

Having this in mind tried following:

• Enabled “Always wait for the network at computer startup and logon” via group policy
  Computer Configuration > Policies > Administrative Templates > System > Logon > Always wait for the network at computer startup and logon
• Updated network card drivers
• Changed network cable
• Tried connecting to another wall network socket

Nothing made any difference

Solution:

Even if none of the above actions resolved the problem in this particular case, I left them here as they may help somebody else.

Final solution which fixed the problem was
Disable the Media Sensing feature for TCP/IP in Windows

This is done in registry:
Start > Run > regedit
HKEY_LOCAL_MACHINE\System\CurrentControlSet\Services\Tcpip\Parameters
Create a new DWORD entry:
Name: DisableDHCPMediaSense
Value: 1

From Microsoft kb-239924 article:
On a Windows-based computer that uses TCP/IP, you can use the Media Sensing feature to detect whether the network media are in a link state. Ethernet network adapters and hubs typically have a “link” light that indicates the connection status. This status is the same condition that Windows interprets as a link state. Whenever Windows detects a “down” state, it removes the bound protocols from that adapter until it is detected as “up” again. Sometimes, you may not want the network adapter to detect this state. You can set this configuration by modifying the registry.

After a reboot all the errors and warnings were gone including Group Policy Results error.