Some background of my network:
Windows Server 2003 domain.
Windows XP clients.
3 sites in different geographical locations connected by VPN.
3 ReadNAS Pro Business (one in each site). All three affected. All running 4.2.12 firmware.
Tried to upgrade one of the devices to 4.2.13. This didn't fix the issue, but device froze two nights in a row after the upgrade so had to downgrade.
Regarding step by step instructions - I can reproduce this simply following instructions on ReadyNAS website http://www.readynas.com/?p=1987
Level-3 support engineer said he could also recreate this using the same instructions. Check notes of case #12976372.
Critical step here seems to be adding "Domain Users" security group to the share. Even if this succeeds any further attempts to edit permissions on next level folders fail.
I can also recreate this without using Domain Users group is if I allow Active Directory to automatically create user’s profile folders on ReadyNAS. There is no Domain Users group in the permission list, but “parameter incorrect” error appears trying to add any additional security group to newly created profile folder. If profile folder is created manually issue does not occur even when permission list looks exactly the same.
If you still can't reproduce this there seems to be something else involved.
I have an acceptable workaround now, but it would be great if the issue is properly fixed. Especially knowing that this doesn't affect only me and your own engineers can recreate it.