Sort of what I'm talking about.
The NTFS file permissions on the files that are being written too by IIS need to allow the IIS user to write to them.
This can be acheived either by giving the "everyone" group the necessary permissions (not a good idea in a production environment, but not so bad in a test environment) or by specifically granting the permissions to the IUSR_computername user.
I'm not saying this is the issue. But it does warrant checking.
If you have the folders on a second drive, and have copied them manually I would suspect that the "everyone" group already has permission, unless specifically set not to.
However, you have stated that you reinstalled XP, in which case the NTFS permissions may still be referencing the UUIDs of the users and groups of the old installation, and so may not work as expected.