So, users are restricted users by default. This means that they can't install programs that require elevated privileges -- i.e. programs that require the installation of a service, or programs that use the Windows Installer or other installation programs that have been configured to block program installation by an ordinary user account.
It also prevents them from installing applications that require changes to system folders and registry keys for which they do not have permission. However, this does not prevent them from using installation programs that do not require these features, or from simply copying executable programs to folders. The explanatory paragraph in the Control Panel applet is misleading to say the least.
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