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This the answer straight from the book:

Domain local groups in a Windows Server 2003 mixed or interim domain are limited

to the domain controller on which they reside. This is very similar to the way local

groups on a member server are limited to the computers on which they reside.

Unless the domain functional level is raised to Windows 2000 native or Windows

Server 2003, the domain local groups cannot be used for permission assignment

on any servers in the domain other than the domain controllers.

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