This setting applies the restriction to Explorer (note the key policy applied to). Users can still run applications from Run command and command shell.
If any DOS programs are in the list, be sure ntvdm.exe is in the list of allowed programs. ntvdm.exe is needed to create dos space for your dos program to run in.
Desktop and Explorer Restrictions Tips:
File menu in Explorer is removed
Map Network Drive and Disconnect Network Drive menu from Explorer removed
Network Neighborhood icon removed and prevent network access from Explorer
Common Groups from Start Menu removed
Find command removed from Start Menu
Run command removed from Start Menu
Shut Down button removed from Start Menu
Control Panel, Printers and My Computer in Explorer hidden and on Start Menu
Taskbar on the Start Menu hidden
Most Recently Used entries removed from Run history
Menus do not display upon right click on Taskbar, Start Button, Clock, or Taskbar icons
Menus do not display upon right-click of Desktop or Explorer's Results pane.
Only programs in Restrict subkey can be run
Remove Run command from Start menu