Argh!
I've been getting the same problems, since installing SP1 onto Vista, IIS refuses to start.
I thought this might be the answer and finally managed to give NETWORK SERVICE the premissions (after a lot of taking control of folders and files to even allow me to add the account to the folder), but nothing has changed.
For the fifth time this weekend I'm going to have to reinstall everything, but this time SP1 is going nowhere near my machine - I just can't afford this kind of breakage.