I've figured out what the problem could be but I still need to understand why that happened! The message I had from Sync Center although confirms that the synchronisation was successful, in reality the files & folders were not completely made available offline.
I was able to reproduce the same scenario (files/folders marked with X at the corner and transparent icons) by mapping a network share, making it available offline, synchronising it PARTIALLY and trying to access files offline. As the files are not made available offline fully, windows was unable to serve them to the user when they were accessed! Although this does not answer why the user was unable to access the share online (it could be a one off issue) on a VPN connection as ideally they must be available online when on a VPN connection!!
Can anyone throw a light on whether there are any limits to the below attributes which may affect Sync Centers' ability to handle the synchronisation of offline folders.
1) The amount of data (size on disk - In this scenario, the users' data was ~33GB)
2) Number of files/folders
3) Levels of folders in directory structure
4) The lenght of the longest file path (In XP the file path that exceeds 255 characters will cause problems, which I have experienced before)
We've managed to resolve the issue by resynchronising the folders but it is not ideal not to be able to rely on Sync Centers' confirmations. I would also like to know why Sync Center was unable to point the synchronisation failure, I'm sure there are predefined parameters which affect this behavior !?!?