Re-Enabling PST functionality in your Outlook session.
Outlook cannot add the folder because creating a new Outlook data file (.pst) file isn't allowed on this computer.
Solution: The registry has a DisablePST value that is set to not allow PST functionality. The data for this key is:
0 = Enables PST functionality
1 = Disable PST Functionality Completely
2 = Disables creating PST's, but allows to open PST's.
1. Open up the registry (regedit).
2. Click on Edit-Find and type in DisablePST. Perform a find. Keep hitting F3 to perform a 'find next' if this doesn't take you directly to the key.
3. Delete the Key or Set it to the corresponding value. Deleting the key or giving it a 0 are one in the same.
Searching it take you to a location similar to: HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Office\<version>\Outlook. This location may be different if using a 64 bit version of Outlook.