Error 16389: Unable to create the file ‘New’ [KB2537398]

I have a home network at home which consists of a few computers running Windows XP and Windows 7. I have some security policies applied to all the computers except the testing systems.  Today when I was creating a new library for my latest project documents, I got the following error while I was logged in as a regular user on one of my computers running Windows 7:

Unable to create the file ‘New’
File system error (16389).
This was weird as I had never gotten this error before and I didn’t make any change in the settings of this computers. I searched for a solution and finally found out what was the cause of this error. There is a policy which prevents the users to write anything on the user’s root folder. In my case it was C:\\Users\\Usman
user root folder in Windows 7
I came to know that Windows does not allow me to create any file or folder in my user folder and since Libraries are included in the root folder, it will not allow you to create a new library. To prevent this error from happening again, you’ll need to disable the following group policy:
group policy to prevent users from adding files to user root folder
Go to run –> gpedit.msc to open the group policy editor and go to the following option:
User Configuration/Administrative Templates/Windows Components/Windows Explorer/
In the right hand pane, find the following:
Prevent users from adding files to the root of their Users Files folder
If the policy is enabled, you need to disable it to be able to write in the user root folder.
I got this solution from KB2537398 of Microsoft Knowledgebase.