If you update environment variables or add new environment variables, you must restart the computer before the changes that you make affect services that run under the Local System account.
This behavior occurs because services that run under the Local System account inherit their environment from the Services.exe process. The Services.exe process receives the environment settings for the Local System account when Windows starts. Because the Services.exe process does not use Windows Messaging, when it receives messages that indicate that a value has changed after Windows starts, the Services.exe process does not update its environment settings. You cannot force a service that is running to acknowledge a dynamic change to the environment of the Local System account.
For more information about environment variables, click the following article number to view the article in the Microsoft Knowledge Base:
311843 How to create system variables in Windows 2000