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Windows 2003 R2 considers itself a new version of windows, and as such, will not join a Windows 200x Domain without being prepped for R2. The common mistake with this is to run adprep for CD1, infact, you need to run it from CD2 - the R2 CD.

The error: "The version of the Active Directory Schema of the source forest is not compatible with the version of Active Directory on this computer" is the common complaint when trying to DCPROMO an R2 server into a Pre-R2 domain

			Full Instructions

1. Insert the second CD into your drive (drive X: for the purposes of this guide)
2. Open the "Run" prompt -> Start > Run
3. To run R2 Forestprep, enter; X:\CMPNENTS\R2\ADPREP\ADPREP.exe /forestprep
4. To run R2 Domainprep, enter; X:\CMPNENTS\R2\ADPREP\ADPREP.exe /domainprep

More detailed instructions are available here http://www.microsoft.com/downloads/details.aspx?familyid=5B73CF03-84DD-480F-98F9-526EC09E9BA8&displaylang=en

Once complete, the schema will be boosted with R2 functionality, detailed here http://www.microsoft.com/windowsserver2003/r2/whatsnewinr2.mspx