The second paragraph is about changing the path where Windows should look for the user files (analogous to running usermod -h /new/home user to change the user entry in the passwd file), not changing the filesystem. I don't see any reason why a directory-mapped device would behave any differently than a regular directlry... although in my brief time working with softlinks and directory junctions, I learned not to have expectations of Windows/NTFS.

I think the issue is that Windows stores the home path in two environment variables -- HOMEDRIVE contains the drive letter, and HOMEPATH contains the path relative to the drive's root (no, I'm not willing to call it an absolute path). If an application only uses the HOMEPATH envvar, the full path will default to whichever drive letter the environment's working directory belongs to, which is most likely C:. I don't have a Windows machine to test it though, so I might be wrong.