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This is more of a Microsoft issue, but I am guessing that I am not the first person on these forums to experience this issue.
We recently deployed IE8 through WSUS to the bulk of our users. Since that time, the PAC file that is applied through GPO has stopped working.
The rest of the GPO works, but the Use Automatic Configuration Script box is not checked and the PAC file destination does not appear.
Have tried running on the default domain policy, among other things, but nothing seems to work.
PAC does work is I manually input it into IE settings.
Any help would be greatly appreciated as our users are all browsing "free" right now.
You're correct in that this is a active directory GPO application issue.
I'm not an active directory guru by any stretch of the imagination, but I've been burned by these type of issues enough to be somewhat conversant on the topic.
One thing you could try is editing the GPO (just open it and then save it again - you don't need to modify it) to force it to go down again to the machines. One thing I've learned is that unless you specifically configure the GPO to be pushed down with a certain periodicity, they'll download to the user or machine (as appropriate for the GPO) once. The only time they'll download again is if the version number associated with the GPO increments. The GPO version will increment if you edit the GPO (opening the GPO and saving it again will accomplish this).
Longer term, I'd suggest you configure your GPO to be downloaded at least once every 24 hours. As far as the exact mechanics of how that is done - I can't tell you. But the AD gurus at my company were able to figure it out.