You have to assign windows permissions on the App_Data folder, to the following windows accounts( for a Win 2003 Server ): IUSR_[machine name], IWAM_[machine name] and/or IIS_WPG. This means opening up a Windows Explorer, navigate to the /[Your site folder]/App_Data folder, right click on it and select properties -> Security and add the accounts to the 'Group and user names' list. This should do the trick.
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