I have setup a fresh 10.4 server.. I created a test user and a home folder on the server. The home folder was created just fine. I was able to have the client computer find the server.
When logging in though, it says: You are unable to log in to the user account "username" at this time. "Logging into the account failed because an error occured. The home folder for the user account is located on a AFP or SMB server."

yes the home folder is on an afp server.. the address is afp://xserver.local/Users/psmith

what should change?