Active Directory and 10.8 Server: Can't add users

I would be most appreciative of any help you folks can give a Mac user at a predominantly Windows/MS/Exchange Tier I university.

I bought a MacMini to act as the departmental File server to allow a granular level of permissions on folders for faculty, administration, residents and students. The students and residents rotate in yearly or for 2 years at a time.

The problem has become when I try and add users from the IT ActiveDirectory domain. The IT folks set-up the DNS, gave it a static IP address etc. all correctly.

The MacMini was also bound to AD in Sys Prefs > Users & Groups > Login Options > Network Account Server to the domain.

There are over 200,000 users in the university system. When I try and search for a user in the Users sidebar it pulls up a completely random list of users and lists "500+ users" next to the buttons. When I try and search for a user, invariably it fails. Furthermore, there is the term "Not Allowed" next to the names of all the random AD users.

What am I doing wrong?

The Sys Admin guy I spoke with said the only way he could figure it out was to go to Groups sidebar, create a new group and add the user that way.

The whole premise for this is to allow the users the same login ID and PWD they do for every other service on campus. That's it. I then want to be able to control folder permissions directly on the MacMini. Is this possible or do I need to use Open Directory in conjunction with AD?

Any help for this formerly Apple Power User would be greatly appreciated.

Thanks folks.