yesterday i ran into the same problem: after setting up a new user-
account using WM, i could login using that account on a client
machine, but then i also got the alert "home folder for this user
account is located on an AFP or SMB server...".
Being able to login generally prooved, that authentication worked. so
there must have been some other kind of issue.
As we all know that OS X is Unix, and Unix relies heavily on
permissions, i then checked if the home folder of that user could be
written to the folder, where all other home-folders are stored (i
call it "hf-storage"). And bingo! It turned out, that the group the
new user belongs to didn't have write permissions on hf-storage, so
the home-folder just couldn't be created there.
I temporarily applied an ACL, giving write permissions to the user on
the hf-storage folder, logged in again on a client machine (this time
the home-folder was successfully created), logged out and removed the
ACL.
I just wonder if there is a better way to fix the permission thing,
in a way that a new home-folder could be created, but the user
himself never gets the ability to make changes on other users' home-
folders, that are hosted in the same location.
Also, it's somehow confusing, that Tiger Server creates the home-
folder, but without the folder-structure known from the client
system. I just get the folders "Desktop" and "Library". Why aren't
the other folders ("Documents", ...) created as well?
Another oddity i found is that if you're using the german
localization of Tiger Server (as i do), you have to set the location
of the users' home-folder's to
"Netzwerk/Server/servername/Users/username"
instead of
"Network/Servers/servername/Users/username".
Otherwise it didn't work for me. The english/german mix of words here
seems a bit strange to me.