I have tried setting permissions for the ASPNET account on the Temporary ASP.NET Files directory. Nothing seems to work.
There are several issues with this scenario. First, with W2K3 Server, "Network Service" is the account that the worker process runs under. And by the way, it is not aspnet_wp.exe anymore either.
Second, there were issues with running ASP.NET in v1.X days on a domain controller; however, that's not an issue on W2K3 Server. But, there is a problem in promoting a server (i.e. running dcpromo) after installing ASP.NET.
So, if you ever this error, be sure to run "aspnet -i". It fixes all sorts of issues including setting the proper permissions.