So when you use loopback processing, the computer processes all of its policies in the GPO's assigned to it, sees that it is processing in loopback mode, and then decides whether it needs to replace (apply just the user policies assigned to the computer and not to the user account) or merge (use both the user polices assigned to the user and the user policies assigned to the computer). Your policy is failing because the computer itself can't read the GPO (you said you removed Authenticated User... which includes the account the computer uses to access the GPO); therefore, it doesn't have permissions to read the GPO and can't see that it needs to process in loopback mode and ignores all the user policies.
As a I see it, you've got two options: Option 1: Add Domain Computers to the security filtering (or create a security group for just those computers and add it). Probably not the best option, but should (without me actually trying to replicate your setup and test it myself) technically work. Option 2: For your sanity, separate the user and computer policies. As a general rule, I try to do this every time I'm using loopback processing... if not for my sanity, for my co-workers that might have to support my configurations. For the computer GPO, leave the normal permissions and include your loopback setting. For the user GPO, remove Authenticated Users and put your security group.


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