Web folders are buggy. I'm not sure that they are ready for prime time.
I tested on several machines when writing my search chapter for the MS
Press Step By Step book. File Search in Office 2003 relies on Web
folders and Office frequently had trouble locating resources on those
folders. I didn't complete my research as I infrequently use File Search
from Office. But they are problematic.
You are right, the WebClient service must be running. But, in my
experience, there can be problems even if it is running. It is one of
those occasions where it works great if it works.