erm....well thats the question I had, which is why I didn't use that setting - it does sound a little extreme and the hide setting works well enough for me.
Looking at it logically I don't think it would - I think for example it is used if you allow users access to the command prompt etc. whereby they could still access the C: drive from there - my users aren't allowed access to the Run command, command prompt etc. so its not an issue, they are also limited to what they can do from Windows Explorer etc. so as I said the hide setting works OK for me.
Since the setting is under the user node anyway, it would be quite easy just to create a new OU with a new GPO with this setting enabled and drop a test user in there to see what happens - this won't affect the rest of the users at all - maybe I'll do this sometime!