How do I correct "Server Application Unavailable"?

I have rescently setup a Windows Web Server 2003, on my network for website developement. I've created a new, blank website in Visual Studio 2008, using ASP .NET 2.0, there is currently no code on the website, all I have in it is default.aspx, web.config, and a test htm file. I can upload the site to the server with no problems, however when I access the site I recieve an error page saying:
"
Server Application Unavailable
The web application you are attempting to access on this web server is currently unavailable.  Please hit the "Refresh" button in your web browser to retry your request.

Administrator Note: An error message detailing the cause of this specific request failure can be found in the application event log of the web server. Please review this log entry to discover what caused this error to occur.
"

When I look at the log entry I have Error messages for Event ID's 1334, and 1088:

Event Type:      Error
Event Source:      ASP.NET 2.0.50727.0
Event Category:      None
Event ID:      1088
Date:            20/02/2009
Time:            11:31:22
User:            N/A
Computer:      WEBSERVER
Description:
Failed to execute request because the App-Domain could not be created. Error: 0x80070005 Access is denied.  

For more information, see Help and Support Center at http://go.microsoft.com/fwlink/events.asp.

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Event Type:      Error
Event Source:      ASP.NET 2.0.50727.0
Event Category:      None
Event ID:      1334
Date:            20/02/2009
Time:            11:31:22
User:            N/A
Computer:      WEBSERVER
Description:
Failed to initialize the AppDomain:/LM/w3svc/2/root

Exception: System.IO.FileLoadException

Message: Could not load file or assembly 'System.Web, Version=2.0.0.0, Culture=neutral, PublicKeyToken=b03f5f7f11d50a3a' or one of its dependencies. Access is denied.

StackTrace:    at System.Reflection.Assembly._nLoad(AssemblyName fileName, String codeBase, Evidence assemblySecurity, Assembly locationHint, StackCrawlMark& stackMark, Boolean throwOnFileNotFound, Boolean forIntrospection)
   at System.Reflection.Assembly.nLoad(AssemblyName fileName, String codeBase, Evidence assemblySecurity, Assembly locationHint, StackCrawlMark& stackMark, Boolean throwOnFileNotFound, Boolean forIntrospection)
   at System.Reflection.Assembly.InternalLoad(AssemblyName assemblyRef, Evidence assemblySecurity, StackCrawlMark& stackMark, Boolean forIntrospection)
   at System.Reflection.Assembly.InternalLoad(String assemblyString, Evidence assemblySecurity, StackCrawlMark& stackMark, Boolean forIntrospection)
   at System.Activator.CreateInstance(String assemblyName, String typeName, Boolean ignoreCase, BindingFlags bindingAttr, Binder binder, Object[] args, CultureInfo culture, Object[] activationAttributes, Evidence securityInfo, StackCrawlMark& stackMark)
   at System.Activator.CreateInstance(String assemblyName, String typeName)
   at System.AppDomain.CreateInstance(String assemblyName, String typeName)
   at System.AppDomain.CreateInstance(String assemblyName, String typeName)
   at System.Web.Hosting.ApplicationManager.CreateAppDomainWithHostingEnvironment(String appId, IApplicationHost appHost, HostingEnvironmentParameters hostingParameters)
   at System.Web.Hosting.ApplicationManager.CreateAppDomainWithHostingEnvironmentAndReportErrors(String appId, IApplicationHost appHost, HostingEnvironmentParameters hostingParameters)

For more information, see Help and Support Center at http://go.microsoft.com/fwlink/events.asp.

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I'm probably doing something really stupid, but I can't think what at this point so any advice or suggestions would be helpful,

Cheers

James