Ok, for anyone else attempting this. It is possible to get this to work. Doesn't look like you have to install SFU.
1. Install the Schema for Server 2003 R2, it should show 31 as your schema value when you are done (2003 regular is 30). This is available as a hotfix from microsoft technet.
2. Check your dns settings, you have to have the forward and reverse dns redirection right.
Soon as you get those two things, it works good.