First of all, thank you for reading this post.
I just reinstalled Windows XP, IIS 5, Visual Studio Microsoft .Net 1.1 and 2.0.
Issue: The server was not able to start Microsoft .Net web services due to insufficient rights.
Symptoms: Server was throwing error in log and on web page saying insufficient rights with anonymous user account - ASPNET (IIS and .Net config files) accounts were set in IIS and NTFS with READ/WRITE.
Resolution: I changed the machine.config file for both 1.1 and 2.0 so the username field is SYSTEM. This allowed the Microsoft .Net to load the site.
I have the ASPNET user account setup for anonymous access in IIS.
I have created a local group policy called LOCALWEB, and have included IUSR, VUSR, ASPNET, SYSTEM accounts.
NTFS permissions have been set for web root directory. Both READ/WRITE for Database folders for the LOCALWEB group.
Current Issue: Unable to write to database, either creating new or updating current records.