Howdy, sorry for jumping on the thread so late - I've been enjoying my vacation over the holidays... ;-)
That being said, I wanted to point out some differences between the WebDAV redirector that's built-in to Windows XP and Windows Server 2003 when compared with the WebDAV redirector in Windows Vista and Windows Server 2008.
The WebDAV redirector that's built-in to Windows XP and Windows Server 2003 did not like mapping to the root of a site, e.g. http://localhost/, that version always wanted to use a path underneath the root, e.g. http://localhost/subpath/. This was an unfortunate design decision that I've always understood to be an artifact of normal drive mapping to \\server\share paths.
The WebDAV redirector in Windows Vista and Windows Server 2008 does not have this limitation. :-]
So you may see different behavior when using the WebDAV redirector on different versions of Windows.