Can a GPO Startup Script starts a background process and exit immediately

Typically, you want something like Microsoft Office to be available to every user who uses a computer.

If you're installing a version of Microsoft Office that is "plain old" MSI-based (Office 2003 and 2000) you should be installing software by assigning it the computer, which causes it to install on startup.

If you're installing Office 2007 or Office 2010 you should be using a startup script to install Office. (Thanks, bundles, Microsoft for breaking "plain old" MSI-based installation in Office 2007 and Office 2010... You consistently prove that you don't actually use your own software the way real users / sysadmins do!)

The phrase "The office install will show up in the network install dialog in control panel..." makes it sound like you've "Published" the application to users via Group Policy, rather than "Assigning" it to the computers. You really want assignment to computers for MSI-based Office installs and a startup script for Office 2007 and 2010. You don't want to "Publish" any software that should appear for every user on a client computer.

re: your logon scripts - It sounds like you should make friends with the "Resultant Set of Policy" (Start / Run / RSOP.MSC) and see if the correct GPOs are applying to the client computers and user accounts.

W/o meaning to sound disrespectful, it sounds like you could use some time with a book or whitepaper about how Group Policy works and, in particular, how linking GPOs at different OUs relative to user and computer objects causes Group Policy to be applied. I think you'll find it much less frustrating if you spend some time with that kind of documentation. You can find some good resources at the Windows Server Group Policy Home on Microsoft's site.

Running under the local system account, the script will be connecting to the network using the AD computer account (i.e. COMPUTERNAME$).

However, the %logonserver% variable might not be valid in the context of the system account - after all the local system account authenticates with the local machine, not the domain. The %logonserver% variable may either be blank, or equal to the local machine name.

try using \\domain.name\NETLOGON instead. This will connnect to a domain controller (and since the NETLOGON share contains the same files on all DCs because it uses FRS, it doesn't matter which DC you're talking to.