It took me a week of reading the forums to finally get the login to work..and then finally realizing after reading more that I had to go into Workgroup Manager and turn on the Mobility and Login preferences for the user.
(of course that couldn't be included in the LION SERVER app side - that would make it to easy to setup).
Under MOBILITY
Turned on/selected
"Create mobile account when user logs in to network account"
"Require confirmation before creating mobile account"
"Show "Don't ask me again" checkbox
Create home using:
"Network home default sync settings"
Options:
Never
All the other options are NEVER
After that...that was the point I could login each machine with the sync icon on each menu bar and no issues about not being able to find the network home folder...just can't "Write" to the folder.
When I manually sync..here is what I get.