Index: base/setup/setup/setup.c
===================================================================
--- base/setup/setup/setup.c	(revision 40105)
+++ base/setup/setup/setup.c	(working copy)
@@ -60,9 +60,6 @@
   HMODULE hDll;
   PINSTALL_REACTOS InstallReactOS;
 
-  /* some dlls (loaded by syssetup) need a valid user profile */
-  InitializeProfiles();
-
   hDll = LoadLibrary (TEXT("syssetup"));
   if (hDll == NULL)
     {
Index: dll/win32/userenv/setup.c
===================================================================
--- dll/win32/userenv/setup.c	(revision 40105)
+++ dll/win32/userenv/setup.c	(working copy)
@@ -178,13 +178,44 @@
 
     /* Set 'DefaultUserProfile' value */
     wcscpy(szBuffer, L"Default User");
-    if (!AppendSystemPostfix(szBuffer, MAX_PATH))
+    
+	/* Create Default User profile directory path */
+    wcscpy(szProfilePath, szProfilesPath);
+    wcscat(szProfilePath, L"\\");
+    wcscat(szProfilePath, szBuffer);
+    
+	/* Attempt default user directory creation */
+	if (!CreateDirectoryW (szProfilePath, NULL))
     {
-        DPRINT1("AppendSystemPostfix() failed\n", GetLastError());
-        RegCloseKey(hKey);
-        return FALSE;
+        if (GetLastError() != ERROR_ALREADY_EXISTS)
+        {
+            DPRINT1("Error: %lu\n", GetLastError());
+            return FALSE;
+        }
+		/* Directory existed, let's try to append the postfix */
+        if (!AppendSystemPostfix(szBuffer, MAX_PATH))
+        {
+            DPRINT1("AppendSystemPostfix() failed\n", GetLastError());
+            RegCloseKey(hKey);
+            return FALSE;
+        } 
+        /* Attempt again creation with appended postfix */
+        wcscpy(szProfilePath, szProfilesPath);
+        wcscat(szProfilePath, L"\\");
+        wcscat(szProfilePath, szBuffer);        
+		if (!CreateDirectoryW(szProfilePath, NULL))
+        {
+            if (GetLastError() != ERROR_ALREADY_EXISTS)
+            {
+                DPRINT1("Error: %lu\n", GetLastError());
+                RegCloseKey(hKey);
+                return FALSE;
+            }
+        }
+		
     }
 
+
     dwLength = (wcslen (szBuffer) + 1) * sizeof(WCHAR);
     Error = RegSetValueExW(hKey,
                            L"DefaultUserProfile",
@@ -202,18 +233,6 @@
 
     RegCloseKey(hKey);
 
-    /* Create 'Default User' profile directory */
-    wcscpy(szProfilePath, szProfilesPath);
-    wcscat(szProfilePath, L"\\");
-    wcscat(szProfilePath, szBuffer);
-    if (!CreateDirectoryW (szProfilePath, NULL))
-    {
-        if (GetLastError() != ERROR_ALREADY_EXISTS)
-        {
-            DPRINT1("Error: %lu\n", GetLastError());
-            return FALSE;
-        }
-    }
 
     /* Set current user profile */
     SetEnvironmentVariableW(L"USERPROFILE", szProfilePath);
@@ -381,11 +400,42 @@
 
     /* Set 'AllUsersProfile' value */
     wcscpy(szBuffer, L"All Users");
-    if (!AppendSystemPostfix(szBuffer, MAX_PATH))
+    
+	/* Create 'All Users' profile directory path */
+    wcscpy(szProfilePath, szProfilesPath);
+    wcscat(szProfilePath, L"\\");
+    wcscat(szProfilePath, szBuffer);
+    
+	/* Attempt 'All Users' directory creation */
+	if (!CreateDirectoryW (szProfilePath, NULL))
     {
-        DPRINT1("AppendSystemPostfix() failed\n", GetLastError());
-        return FALSE;
-    }
+        if (GetLastError() != ERROR_ALREADY_EXISTS)
+        {
+            DPRINT1("Error: %lu\n", GetLastError());
+            return FALSE;
+        }
+		/* Directory existed, let's try to append the postfix */
+        if (!AppendSystemPostfix(szBuffer, MAX_PATH))
+        {
+            DPRINT1("AppendSystemPostfix() failed\n", GetLastError());
+            RegCloseKey(hKey);
+            return FALSE;
+        } 
+        /* Attempt again creation with appended postfix */
+        wcscpy(szProfilePath, szProfilesPath);
+        wcscat(szProfilePath, L"\\");
+        wcscat(szProfilePath, szBuffer);        
+		if (!CreateDirectoryW(szProfilePath, NULL))
+        {
+            if (GetLastError() != ERROR_ALREADY_EXISTS)
+            {
+                DPRINT1("Error: %lu\n", GetLastError());
+                RegCloseKey(hKey);
+                return FALSE;
+            }
+        }
+		
+    }	
 
     Error = RegOpenKeyExW(HKEY_LOCAL_MACHINE,
                           L"SOFTWARE\\Microsoft\\Windows NT\\CurrentVersion\\ProfileList",
@@ -416,19 +466,6 @@
 
     RegCloseKey(hKey);
 
-    /* Create 'All Users' profile directory */
-    wcscpy(szProfilePath, szProfilesPath);
-    wcscat(szProfilePath, L"\\");
-    wcscat(szProfilePath, szBuffer);
-    if (!CreateDirectoryW(szProfilePath, NULL))
-    {
-        if (GetLastError() != ERROR_ALREADY_EXISTS)
-        {
-            DPRINT1("Error: %lu\n", GetLastError());
-            return FALSE;
-        }
-    }
-
     /* Set 'All Users' profile */
     SetEnvironmentVariableW(L"ALLUSERSPROFILE", szProfilePath);