Have you enabled “Log on as a service” for the account?
Start -> Control Panel -> Administrative Tools -> Local Security Policy -> Local Policies -> User Rights Assignment -> Log on as a service
(make sure your account is in this list directly or indirectly; it has also been suggested that you should set: Access this computer from the network; Deny logon locally; Log on as a batch job)
Also – ensure that the account has “Read & Execute”, “List Folder Contents” and “Read” access to the file system that underpins the web site/application.