I'm running vista home premium with iis7 and I've got the same problem.

 I've checked permissions on wwwroot and made sure my folder has the same permissions and i still get the problem as below:

I've also tried giving Full control permission to everything and still got this problem - not sure where to go now!

Andrew 

Server Error in Application "Default Web Site"

HTTP Error 401.3 - Unauthorized

Description: You do not have permission to view this directory or page because of the access control list (ACL) configuration or encryption settings for this resource on the Web server.

Error Code: 0x80070005

Notification: AuthenticateRequest

Module: IIS Web Core

Requested URL: http://localhost:80/gymbitch/login.asp

Physical Path: C:\Users\Andrew Soames\Documents\Andrew\Web Sites\gymbitch_social\login.asp

Logon User: Anonymous

Logon Method: Anonymous

Handler: ASPClassic

Most likely causes:

• The user authenticated by the Web server does not have permission to open the file on the file system.
• If the resource is located on a Universal Naming Convention (UNC) share, the authenticated user may not have sufficient share and NTFS permissions, or the permissions on the share may not match the permissions on the physical path.
• The file is encrypted.

What you can try:

• Open Windows Explorer and check the ACLs for the file that is being requested. Make sure that the user accessing the Web site is not being explicitly denied access, and that they do have permission to open the file.
• Open Windows Explorer and check the ACLs for the share and the physical path. Ensure that both ACLs allow the user to access the resource.
• Open Windows Explorer and check the encryption properties for the file that is being requested. (This setting is located in the Advanced attribute properties dialog.)
• Create a tracing rule to track failed requests for this HTTP status code. For more information about creating a tracing rule for failed requests, click here.

More Information... The user trying to access the page was successfully logged on, but the user does not have permission to access the resource. This means the access control list (ACL) for the resource either does not include the user or explicitly denies the user. Check the ACL for the resource and add the user to the ACL. If the content is located on a share, ensure both NTFS and share permissions allow the user access. It is also possible that the user is part of a group that is denied access.