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I've seen the same problem today (Domino and Notes 8.5). We have archive settings which forbid the usage of private settings.
However, the settings did not work for one user. Saving the settings did not refresh them.
After some tries, I achieved to delete the local policies in the $Policies view in the personal names.nsf. After that and a restart, the policies worked at last.
Seems like the update of the archive settings is not working properly.
Feedback response number WEBB7SVC9N created by ~Mark Minhipisonli on 06/10/2009