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GPO to configure a Terminal Server not working

I have been trying to get my remote desktop services server to work with GPO but am unable to figure it out. The reason for doing this is to have a different lot of settings that apply when logging on via terminal services than on each users workstation. I'm only just getting my head around policies etc. but 

I followed this guide :

The basic steps to use a GPO to configure a Terminal Server:
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place the Terminal Server (not the users!) in a separate OU
create a TS-specific GPO
configure the GPO to use "loopback processing" with the "Replace" option (see KB 231287)
link the GPO to the OU which contains the Terminal Server machine account
add the Terminal Server machine account to the security list of the GPO
add a User group to the security list of the GPO (or keep the default entry for "Authenticated Users" if you want the settings in the GPO to apply to all users)
modify the rights for Administrators on the GPO: select "Deny" for the right to "Apply this policy" (see KB 816100)

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However, when I logon to terminal services only default domain policy will apply, not the terminal services GPO. I have done GPUpdate/reboot etc.

If i add a user to the terminal services OU then it seems to work.

Win2008R2

Jon


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