Cannot set folder permissions to AD groups in Windows 2003

Scenario

I've an environment with Windows 2003 & Windows 2008 servers in Windows 2000 Native mode. If I try to add any AD group in a folder security group of a Windows 2008 server, the AD group name won't get resolved.
i.e, ultimately you will fail to set folder permissions to these AD groups. But when I try to do the same from Windows 2003 server, it gets added.

Resolution

In Windows 2000 Native mode, Windows 2008 server cannot set folder permissions to AD group. In order to resolve this issue, raise the domain functional level to Windows 2003 server or higher considering the domain controllers in the domain

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