The following is true for XP and Windows 2003 Server and newer. (actually this is true for all Windows but NT and 2000 default to these rights)
All APPX OS users require "Modify" rights to the APPX Directory and all contents (recursive - this is important).
All APPX OS users require "Modify" rights to the APPXODBC directory and all contents (recursive - this is important).
This must be done. It must be done by hand (ie you can't just will it to happen -- if you can, please come see me). It may be done by username or by group membership.