I'd like to update the DACL of a directory on either a local or remote
machine. When I use the UNC directory path (e.g., "\\machine\share\...") on
an XP, SetAccessControl will wipe out the inherited ACEs. If I use a plain
directory path (e.g., "C:\directory\..."), the API works fine.

Has anyone else seen this problem? Any help is appreciated.

(I tried interop with Win32 APIs and has no problem with the UNC directory
path. But I'd rather using the .NET new API. I Also tried WMI to work around
the problem and found out its "ChangeSecurityPermissions" API won't apply
inherited rule at all: When adding a new ACE with container and object
inherit flags set, the API will add the ACE directly (no as "inherited") to
every sub directores or files.)

Here is a sample code to show the problem of SetAccessControl:

using System;
using System.Collections.Generic;
using System.Text;
using System.IO;                        // DirectoryInfo
using System.Security.AccessControl;    // DirectorySecurity
using System.Security.Principal;        // IdentityReference

namespace UpdateDaclTest
{
    class Program
    {
        static void Main(string[] args)
        {
            // Test setup:
            // "ATestShare" is declared as a share for a directory "C:\ATestShare".
            // The share's permission is set as "Full Control" to "Everyone".

            // Using the following path will wipe out inherited ACEs from
            // the directory and its sub directories and files.
            string path = @"\\myMachine\ATestShare";

            // Using the following works as expected.
            //string path = @"C:\ATestShare";

            DirectoryInfo info = new DirectoryInfo(path);
            DirectorySecurity security =
info.GetAccessControl(AccessControlSections.All);
            InheritanceFlags flags = InheritanceFlags.ContainerInherit |
InheritanceFlags.ObjectInherit;
            SecurityIdentifier sid = new
SecurityIdentifier(WellKnownSidType.BuiltinBackupOperatorsSid, null);
            security.AddAccessRule(new FileSystemAccessRule(
                sid, FileSystemRights.Modify, flags,
                PropagationFlags.None, AccessControlType.Allow));
            info.SetAccessControl(security);
        }
    }
}