For my scenario, I found that there was a identity node in the web.config file.
<identity impersonate="true" userName="blah" password="blah">
When I removed the userName and password parameters from node, it started working.
Another option might be that you need to make sure that the specified userName has access to work with those “Temporary ASP.NET Files” folders found in the various C:\Windows\Microsoft.NET\Framework{version} folders.
Hoping this helps someone else out!