I found the Exchange 2007 error

I finally opened a business critical support issue with Microsoft and found the problem. The KB that I got pointed to was both right and wrong. http://support.microsoft.com/kb/936907

The description of the issue was 100% accurate

If you copy and paste the LDAP query string exactly as shown, you're install will fail because there is a typo in the KB.

That was a first for me. The string shown for the All Users query has an extra space in the last portion of the string. The correct string is:

(& (mailnickname=*) ( (&(objectCategory=person)(objectClass=user)(!(homeMDB=*))(!(msExchHomeServerName=*)))(&(objectCategory=person)(objectClass=user)((homeMDB=*)(msExchHomeServerName=*))) ))