There should be a netlogon.bat file created in the user's home directory. Can you see that file? In my case it is in the root of my U:\ drive. You shouldn't edit this file as it's what's created by the login script manager.
I assume that the login script saves correctly when you press the SAVE button?
Is this a new SME installation? Are you sure that the users are logging onto the domain correctly? I have occasional problems with users logging on wirelessly, where the wireless connection isn't made at the logon point, and this means that the logon script doesn't run. If the logon script runs, you will see a DOS window appear on the toolbar, if you maximise it in time, you can see the commands in the netlogon.bat batch file running.
Are you running XP Pro? as only Pro allows domain logon. XP Home doesn't, so batch file won't run.