Is your AD domain in native mode? I'm pretty sure the last time I checked
this you couldn't add a domain local group to a local group unless the
domain was in native mode--you could only add global groups.
MS-MVP-Windows Server--Group Policy
Check out http://www.yqcomputer.com/
-- The Windows Group Policy Information Hub:
FAQs, Whitepapers and Utilities for all things Group Policy-related