UPDATED:
On a windows 2008R2 server (where we have admin priveges, but are not running elevated) I am able to manually use the console command
> mklink /h < link> <target>
to create hard links between files on a single volume.
However, in node.js (which we need to work) which I run from the same command line and as the same user. I am using the fs.link() command and it is getting an security violation.
However, this problem does not exist on a Windows 7 computer that I have. There I can do the fs.link() and it creates the hard link. So it looks like a security policy issues. What should I be looking for?