Adam, I changed the path to absolute, but I'm getting the same results. After more testing, it seems like this will work if the virtual directory points below the user's 'uploads' folder, but not if it points above it. When I redid this test will another folder, I got the error below. Again, to recreate this all I did was create a virtual directory in IIS that points to a folder, then create a physical folder with the same name.
The 'impersonate' solution you posted was quite a while ago, is this still the only other solution to create 'shared' folders? Because I need my users to be able to create these folders through my web app on the fly, without access to IIS.