ACL Access Denied error despite giving DefaultAppPool access to application folder beneath Default Web Site

I don't understand the error because I have granted ACL permissions to DefaultAppPool. I would be grateful for some advice on how to proceed.   IIS7.5  Windows 2008R2. Microsoft .NET Framework Version:4.0.30319; ASP.NET Version:4.0.30319.272

Here's the error: 401.3

Access is denied.

Description: An error occurred while accessing the resources required to serve this request. You might not have permission to view the requested resources.

Error message 401.3: You do not have permission to view this directory or page using the credentials you supplied (access denied due to Access Control Lists). Ask the Web server's administrator to give you access to'D:\HTTP\wwwroot\FOOfolder\Logon.aspx'.

RELEVANT FACTS:

The FOO application uses DefaultAppPool.

DefaultAppPool  LoadProfile = true

FOOfolder ->Security Tab-> DefaultAppPool has  these permissions:

      [x] Read & execute

      [x] List folder contents

      [x] Read permissions

I have removed the following from the web.config in the FOO application's folder and placed it in the web.config file beneath wwwroot:

 <system.web>  

<authentication mode="Windows" />  

</system.web>

Thanks