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Outlook 2010 client to CRM 2011 fails with Sync error for Contact

Question
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Hi,
We've recently upgrade our CRM 4 to CRM 2011, which has gone well overall. however, if I create a Contact within the Outlook 2010 client then try to Synchronise I get a the following error "Error:You cannot link this item to Microsoft Dynamics CRM. Synchronization with this record or activity type has been turned off.".
All synchronisation options are turned on and if I create a Contact in CRM via the Web access it synchronises back into Outlook just fine.
I do have one odd wrinkle - the Local Data synchronisation rules have been modified so that only Contacts within a particular marketing list is sync into outlook. If I create the Contact from the web access and add it to the Marketing List is synchronises. But creating the Contact within Outlook isn't in the Marketing List, so if would fail the Local Data synch rules.
Am I right in thinking that the Local Data rules must allow the Contact to be synchronised going the other way?
The trace log is here:
# CRM Tracing Version 2.0
# LocalTime: 2011-04-28 12:39:20.844
# Categories: *:Verbose
# CallStackOn: Yes
# ComputerName: DAVIDTHOMAS-PC
# CRMVersion: 5.0.9688.1045[2011-04-28 12:39:20.844] Process:OUTLOOK |Organization:00000000-0000-0000-0000-000000000000 |Thread: 5(MSCRM:-RegistryWatcher.RegTrackerThreadProc) |Category: Platform |User: 00000000-0000-0000-0000-000000000000 |Level: Verbose | RegistryKeyChangedEventHandler.Invoke
at RegistryKeyChangedEventHandler.Invoke(Object sender, EventArgs e)
at RegistryWatcher.RegTrackerThreadProc()
at ThreadHelper.ThreadStart_Context(Object state)
at ExecutionContext.Run(ExecutionContext executionContext, ContextCallback callback, Object state, Boolean ignoreSyncCtx)
at ExecutionContext.Run(ExecutionContext executionContext, ContextCallback callback, Object state)
at ThreadHelper.ThreadStart()
>Received Registry Change Notification. Current Status = 0 New Status = 0
[2011-04-28 12:39:21.994] Process:OUTLOOK |Organization:00000000-0000-0000-0000-000000000000 |Thread: 5(MSCRM:-RegistryWatcher.RegTrackerThreadProc) |Category: Platform |User: 00000000-0000-0000-0000-000000000000 |Level: Verbose | RegistryKeyChangedEventHandler.Invoke
at RegistryKeyChangedEventHandler.Invoke(Object sender, EventArgs e)
at RegistryWatcher.RegTrackerThreadProc()
at ThreadHelper.ThreadStart_Context(Object state)
at ExecutionContext.Run(ExecutionContext executionContext, ContextCallback callback, Object state, Boolean ignoreSyncCtx)
at ExecutionContext.Run(ExecutionContext executionContext, ContextCallback callback, Object state)
at ThreadHelper.ThreadStart()
>Received Registry Change Notification. Current Status = 0 New Status = 0
[2011-04-28 12:39:24.842] Process:OUTLOOK |Organization:f4b97783-780b-dd11-9ba7-00110a2e1bb6 |Thread: 27 |Category: Application.Outlook |User: 00000000-0000-0000-0000-000000000000 |Level: Info | ProgressDialogForOutlook.Microsoft.Crm.Application.SMWrappers.IProgressDialogForOutlook.SetDownloadRunning
at ProgressDialogForOutlook.Microsoft.Crm.Application.SMWrappers.IProgressDialogForOutlook.SetDownloadRunning()
at ThreadsSupport.ExecuteThreadProc(ThreadProc threadProc, IntPtr parameter)
>DownloadState is changed: NewState = Running, OldState=NotRunning
[2011-04-28 12:39:24.982] Process:OUTLOOK |Organization:f4b97783-780b-dd11-9ba7-00110a2e1bb6 |Thread: 27 |Category: Application.Outlook |User: 00000000-0000-0000-0000-000000000000 |Level: Info | DownloadStatus.set_CurrentDownloadState
at DownloadStatus.set_CurrentDownloadState(DownloadState value)
at ProgressDialogForOutlook.Microsoft.Crm.Application.SMWrappers.IProgressDialogForOutlook.SetDownloadRunning()
at ThreadsSupport.ExecuteThreadProc(ThreadProc threadProc, IntPtr parameter)
>ShowHeartBeat_bar() was called
[2011-04-28 12:39:25.060] Process:OUTLOOK |Organization:00000000-0000-0000-0000-000000000000 |Thread: 5(MSCRM:-RegistryWatcher.RegTrackerThreadProc) |Category: Platform |User: 00000000-0000-0000-0000-000000000000 |Level: Verbose | RegistryKeyChangedEventHandler.Invoke
at RegistryKeyChangedEventHandler.Invoke(Object sender, EventArgs e)
at RegistryWatcher.RegTrackerThreadProc()
at ThreadHelper.ThreadStart_Context(Object state)
at ExecutionContext.Run(ExecutionContext executionContext, ContextCallback callback, Object state, Boolean ignoreSyncCtx)
at ExecutionContext.Run(ExecutionContext executionContext, ContextCallback callback, Object state)
at ThreadHelper.ThreadStart()
>Received Registry Change Notification. Current Status = 0 New Status = 0
[2011-04-28 12:39:26.489] Process:OUTLOOK |Organization:f4b97783-780b-dd11-9ba7-00110a2e1bb6 |Thread: 27 |Category: Application.Outlook |User: 00000000-0000-0000-0000-000000000000 |Level: Error | ProgressDialogForOutlook.Microsoft.Crm.Application.SMWrappers.IProgressDialogForOutlook.SetDetailedErrorMessage
at ProgressDialogForOutlook.Microsoft.Crm.Application.SMWrappers.IProgressDialogForOutlook.SetDetailedErrorMessage(String entityType, String entityName, Boolean warning, String errorMessage, String entryId, String storeId, String crmId, Int32 entityObjectTypeCode, Boolean showDialog)
at ThreadsSupport.ExecuteThreadProc(ThreadProc threadProc, IntPtr parameter)
>crm id :'', Error:You cannot link this item to Microsoft Dynamics CRM. Synchronization with this record or activity type has been turned off.
[2011-04-28 12:39:26.505] Process:OUTLOOK |Organization:00000000-0000-0000-0000-000000000000 |Thread: 5(MSCRM:-RegistryWatcher.RegTrackerThreadProc) |Category: Platform |User: 00000000-0000-0000-0000-000000000000 |Level: Verbose | RegistryKeyChangedEventHandler.Invoke
at RegistryKeyChangedEventHandler.Invoke(Object sender, EventArgs e)
at RegistryWatcher.RegTrackerThreadProc()
at ThreadHelper.ThreadStart_Context(Object state)
at ExecutionContext.Run(ExecutionContext executionContext, ContextCallback callback, Object state, Boolean ignoreSyncCtx)
at ExecutionContext.Run(ExecutionContext executionContext, ContextCallback callback, Object state)
at ThreadHelper.ThreadStart()
>Received Registry Change Notification. Current Status = 0 New Status = 0
[2011-04-28 12:39:26.661] Process:OUTLOOK |Organization:00000000-0000-0000-0000-000000000000 |Thread: 5(MSCRM:-RegistryWatcher.RegTrackerThreadProc) |Category: Platform |User: 00000000-0000-0000-0000-000000000000 |Level: Verbose | RegistryKeyChangedEventHandler.Invoke
at RegistryKeyChangedEventHandler.Invoke(Object sender, EventArgs e)
at RegistryWatcher.RegTrackerThreadProc()
at ThreadHelper.ThreadStart_Context(Object state)
at ExecutionContext.Run(ExecutionContext executionContext, ContextCallback callback, Object state, Boolean ignoreSyncCtx)
at ExecutionContext.Run(ExecutionContext executionContext, ContextCallback callback, Object state)
at ThreadHelper.ThreadStart()
>Received Registry Change Notification. Current Status = 0 New Status = 0
[2011-04-28 12:39:26.661] Process:OUTLOOK |Organization:f4b97783-780b-dd11-9ba7-00110a2e1bb6 |Thread: 27 |Category: Application.Outlook |User: 00000000-0000-0000-0000-000000000000 |Level: Info | ProgressDialogForOutlook.Microsoft.Crm.Application.SMWrappers.IProgressDialogForOutlook.SetDownloadErrorsOccurred
at ProgressDialogForOutlook.Microsoft.Crm.Application.SMWrappers.IProgressDialogForOutlook.SetDownloadErrorsOccurred(Boolean waitForConfirmation)
at ThreadsSupport.ExecuteThreadProc(ThreadProc threadProc, IntPtr parameter)
>DownloadState is changed: NewState = ErrorOccurred, OldState=Running
[2011-04-28 12:39:36.862] Process:OUTLOOK |Organization:00000000-0000-0000-0000-000000000000 |Thread: 5(MSCRM:-RegistryWatcher.RegTrackerThreadProc) |Category: Platform |User: 00000000-0000-0000-0000-000000000000 |Level: Verbose | RegistryKeyChangedEventHandler.Invoke
at RegistryKeyChangedEventHandler.Invoke(Object sender, EventArgs e)
at RegistryWatcher.RegTrackerThreadProc()
at ThreadHelper.ThreadStart_Context(Object state)
at ExecutionContext.Run(ExecutionContext executionContext, ContextCallback callback, Object state, Boolean ignoreSyncCtx)
at ExecutionContext.Run(ExecutionContext executionContext, ContextCallback callback, Object state)
at ThreadHelper.ThreadStart()
>Received Registry Change Notification. Current Status = 0 New Status = 0
[2011-04-28 12:39:36.877] Process:OUTLOOK |Organization:00000000-0000-0000-0000-000000000000 |Thread: 5(MSCRM:-RegistryWatcher.RegTrackerThreadProc) |Category: Platform |User: 00000000-0000-0000-0000-000000000000 |Level: Verbose | RegistryKeyChangedEventHandler.Invoke
at RegistryKeyChangedEventHandler.Invoke(Object sender, EventArgs e)
at RegistryWatcher.RegTrackerThreadProc()
at ThreadHelper.ThreadStart_Context(Object state)
at ExecutionContext.Run(ExecutionContext executionContext, ContextCallback callback, Object state, Boolean ignoreSyncCtx)
at ExecutionContext.Run(ExecutionContext executionContext, ContextCallback callback, Object state)
at ThreadHelper.ThreadStart()
>Received Registry Change Notification. Current Status = 0 New Status = 0Thursday, April 28, 2011 4:56 AM