Your problem is genuine. And since it is problem , it has a soluton too. The solution lies with you ;only you need to look at it in a different view. I have faced the similar problem and took me weeks to solve it.
The main cause behind it lies to the highly enhanced security features of .NET framework 2.0 over .NET 1.1. It has imposed several restiction , policies and permission sets for accessing the data from the web application, It uses full trust as well as partial trust.
1) If you try to access the data you don't have permission too or if the source is not trusted it gives the above exception. You not only have to give permission to your application to access the source BUT you need to make the source as trusted one too.
2)Also, the other main cause is that , if you try to read the data that is not available, it gives the above exception.
So its time now to revise your concepts about CAS and permissions in visual studio.NET 2005 which is highly advanced than .NET 1.1.
For details click the link below http://msdn.microsoft.com/library/default.asp?url=/library/en-us/dnnetsec/html/foundstone.asp
Go thro it docs and decide which permission your application requires and implement it.
Best of Luck.
mail me a thank you if you are benefitted by this post.
Balaji Birajdar