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CRM 2011 install, having trouble with AD OU objects

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I've created a new OU on the primary domain on our AD machine, but the CRM 2011 setup says it cannot find any AD objects. I tried specifying the AD server object in the config.xml file itself, but even though what I entered shows up in the setup now, it still says Unable to Browse for Active Directory objects. 

I guess my main question here is, does AD need to be installed on the CRM server itself, or can it reference our primary domain controller? They are both on the same domain. Also, does the OU I created have to have objects in it for it to be recognized as a valid OU?


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