I keep getting this error"The home folder for user "xxxxxxx" isn't located in the usual place or can't be accessed." The home folder has been set, DNS, forward and reverse is working fine as well. What am I doing wrong?

What is the history of that user?
Where was that user xxxxxxx created? (If it was via Terminal, what command and full syntax?)
Did that user ever log in normally and without problems?
Is it only for that one user or are the other users created with the same method affected?

This is a brand new setup, all users were created on the server (mac mini server 10.6.3) using the Workgroup Manager. The user "johndoe" share point is set as follows: /Volumes/Server HD/Users/johndoe

I have not attempted login with other users. I'm a bit new so I wanted to have the proper workflow before I setup all the users.

Is /Volumes/Server HD/ always mounted at that system? You would need to have that location accessible and always mounted for any user for it to work.

When johndoe logs in on that Mac, the system will try to get his home folder - if that server isn't mounted and accessible it can't get to that home folder.
What Mac are these users using for logging in? That Mac mini or some other Mac?

I have it set up as an nfs automount, I assume thats the proper way.

I had the same problem, and a VERY QUICK AND EASY solution created by Thomas Tempelmann elsewhere worked for me. (In my case, I also saw the dialog box that said, "The home folder for user "xxxxxxx" isn't located in the usual place or can't be accessed." As an aside, I suspect the problem may have arisen when two hard disks shared the same name "Macintosh HD" although I'm not entirely sure of that being the cause.)

SOLUTION that worked for me:
1) Open the Terminal.app
2) Type this and then press return:
sudo xattr -d com.apple.FinderInfo /
(note: don't leave off the last space and "/" character before pressing return)
3) It should have asked for your password. Type it and press return.
4) Now do nothing else, except quit Terminal.app and then RESTART your computer (select "Restart" from the Apple menu)

More about the original problem Thomas described (identical to mine): "Finder shows empty desktop, and even an 'open /Applications' in Terminal does not open a window. Furthermore, 'open /' leads to the message that 'The alias <diskname> can't be opened because the original item can't be found'."

I had almost given up hope, but this simple command that resulted in a repaired "com.apple.FinderInfo" file did the trick for me. I hope this works for you.