We're having the same error message while running the latest .NET 1.1 versions of both CS (2.1) and CuteChat (3.1). Merely setting trust levels to Medium doesn't cause this (as you've obviously fixed that prob!), but there's something that our host must have set in addition that's resulting in this message.
We've got copies of some of their config files that I can send to you if you'd like to have a review (or a test on a production box while running these configs) - this is a fairly major host, so it might be worthwhile in terms of ensuring wide compatability, especially if others run with similar configs.
As far as our requirements here, we need some kind of chat solution running by Tuesday of next week, so we'll probably be looking at either alternate hosting or alternate software in the meanwhile - but if it's at all possible that you find a simple fix for this before then, we'll of course be more than happy to apply it! ;D We would of course prefer to be using your software and our current hosting setup!
Cheers,
John