I was able to resolve this error by following the information provided on this web site: Jason Medero - SharePointing into Collaboration.
This problem occurs if you installed the Microsoft .NET Framework 2.0 on the same server on which SharePoint Portal Server 2003 is installed. See ME922030
Microsoft article ME891538
helped me solve the problem.
Look at ME835521
for information on this problem.
This error appears when the IUSR account does not have the appropriate permissions on the SharePoint Portal Server, often due to group policies restricting the user rights assignment.
Quite a few people have asked me to elaborate on my comments that I posted on this error message. Unfortunately, when I ran into this issue I was at a customer site and the necessary documentation is safely with them. However, drawing on my memory banks, SPS was working fine until I applied the high security template to the Windows Server 2003 server that SPS was installed on.
Once I had applied that, I kept getting this error. So, I removed the IUSR account from the BUILTIN\guests group, changed its password in both AD and IIS, and made sure that it had logon locally rights and that it didn't have deny logon locally rights. There may have been some other rights that this account was denied in "User Rights Assignment" but I do not remember what they were, so it will have to be trial and error. I do not think that I needed to give this account logon as a service though.
Following the directions in ME841216
helped me to resolve this problem.