I recently ran across the error “The directory name is invalid” when I used the the run as feature launching PowerShell on XP. The reason you get this error is because you can’t use the Run as feature to access logged on users mapped home drive. If you go to the properties of the exe you are running you will probably find %HOMEDRIVE%%HOMEPATH% in the “Start In” options. The great thing about the issue is that you can fix it very easily. Just change the “Start In” property to a system wide path like “C:\Temp” or something like that. You can also reference the below KB to read more about the problem.
Microsoft KB Article