Upgrade Sharepoint 2.0 to 3.0 Prescan failure

I am attemptint to upgrade our current Sharepoint site from 2.0 to 3.0. To do this I have setup a new server from scratch. It is a virtual server with 2GB or RAM allotted running Windows Server Standard 2003. I have installed Sharepoint 2.0 with no issues. I installed SQL 2005 Express (after a few attempts to upgrade using the MSDE it loads) and have all databases loaded on that SQL instance. I have restored a backup of our sharepoint site to this new server and it works perfectly... no issues at all. It is actually much better than I expected. Anyway, my next step os to run the Prescan.exe prior to trying to do the Upgrade In-Place option. No matter what I do the prescan fails with the following error:

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
System.Security.SecurityException: Request for the permission of type System.Sec
urity.Permissions.FileIOPermission, mscorlib, Version=1.0.5000.0, Culture=neutra
l, PublicKeyToken=b77a5c561934e089 failed.
   at System.Security.CodeAccessSecurityEngine.CheckHelper(PermissionSet granted
Set, PermissionSet deniedSet, CodeAccessPermission demand, PermissionToken permT
oken)
   at System.Security.CodeAccessSecurityEngine.Check(PermissionToken permToken,
CodeAccessPermission demand, StackCrawlMark& stackMark, Int32 checkFrames, Int32
 unrestrictedOverride)
   at System.Security.CodeAccessSecurityEngine.Check(CodeAccessPermission cap, S
tackCrawlMark& stackMark)
   at System.Security.CodeAccessPermission.Demand()
   at System.IO.FileStream..ctor(String path, FileMode mode, FileAccess access,
FileShare share, Int32 bufferSize, Boolean useAsync, String msgPath, Boolean bFr
omProxy)
   at System.IO.FileStream..ctor(String path, FileMode mode, FileAccess access,
FileShare share, Int32 bufferSize)
   at System.IO.StreamWriter.CreateFile(String path, Boolean append)
   at System.IO.StreamWriter..ctor(String path, Boolean append, Encoding encodin
g, Int32 bufferSize)
   at System.IO.StreamWriter..ctor(String path, Boolean append)
   at System.IO.File.CreateText(String path)
   at Microsoft.SharePoint.PreupgradeReport.Scan.InitLogFiles()
Failed>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

This error occured when I originally installed with Sharepoint just creating the default MSDE instance. I figured it was some sort of SQL security issue so I installed SQL 2005 Express and ensured that the ID I am using is a SysAdmin in SQL (it is). This is a completely clean install of everything and I am stuck. Any help would be appreciated.

Thank you!