1. If you are trying to create a new profile and that user does not have the correct access or is hiden from the GAL they will get a bookmark failure when you are trying to do a check names during the profile creation process. This is one problem with self hosting as you have to manually change the permissions to suit your needs all the time. If you are too restrictive with the acls on the Default Offline Address Book users will not be able to create a profile.
2. When you are using OAW you are talking directly to the GAL and not using the OAB files that have been filtered and downloaded to the client.
Your comment: Now, I create a new profile for one of my users and set it in Cached mode. I then launch Outlook 2007 and it asks for username/password which I enter for this user. It launches Outlook and on the top bar I click on Address book. It lists the Outlook Address Books and Contacts underneath. Then it lists Global Address lists, then it has All Address Lists, which contain BOTH company address lists I have created.
Dave - You still have to modify the permissons to remove the OAB from outlook so it is not seen by the users. When Outlook starts up it has its own logic for building the list of OABs that are going to be displayed by the address book provider.