Network path is not found

ok it would appear the problem is resolved after uninstalling KB968389 (ref) and then reinstalling again. this has had me stumped for a few months, i would never have guessed it was NTLM related...

to quote:

If you capture network traces while trying to access shared folders, you may see a response of Error, Code =(13) STATUS_INVALID_PARAMETER from the server for the session setup:

192.168.0.2 192.168.0.1 SMB:C; Session Setup Andx, NTLM AUTHENTICATE MESSAGE, Workstation: WRK001

192.168.0.1 192.168.0.2 SMB:R; Session Setup Andx - NT Status: System - Error, Code = (13) STATUS_INVALID_PARAMETER

This error code means that there is an issue with NTLM authentication. The update in KB 968389 introduces a new feature that enhances protection and handling of credentials when authenticating network connections by using Integrated Windows Authentication.

This behavior can occur if the update discussed in KB 968389 did not install properly. To correct the issue, please uninstall the update completely and then reboot the server. After the restart, you should find that the symptoms no longer occur. Reinstall the update from KB 968389 and restart the server again. The issue should not re-occur. You should be able to access all shares successfully locally and remotely.

This is the problem with basic switches, if it had been something like a cisco catalyst or an HP procurve it may have detected erratic activity on the port and shut it down, this would of course have meant you'd have no DNS if you only have one DC, and no way for users to log in, but the network would at least be effectively "up". My advice is to invest in a couple of 24 port procurve switches and give them a basic configuration, then team the NICs from your DCs and the like so that, should it happen again, the switch will shut down the faulty port.

With regards to troubleshooting the existing NIC if it's faulty hardware who knows what it's spewing out in to your network, maybe if you download something like wireshark and have it running on a client PC when you plug the other NIC back in you can see what traffic it's creating or where your packets are going. Also to test if it's a hardware or software issue you could try a linux live cd such as Ubuntu 10.10. If you load this in to RAM and test the NIC (live cds do not touch the HD so are safe to run for hardware diagnostics) you'll be able to see if it's software (your installation of windows) or hardware.