I'm not sure the users are the same on W2K3 but from your list it doesn't look like the ASPNET user has full rights to the virtual directory.  The install actually happens as the ASP user so that user needs rights to create the portal folder under the virtual root. 

Is Network service actually the user that W2K3 uses now in place of the ASP.NET user?

Ahh I thought so.  I'm just to cheap to have bought it yet.  :) 

It still looks like the install is having a problem creating the directory /portal though.  I had this happen to me once, it was after I had deleted and reinstalled a couple of different versions.   At some point windows just stopped trying to set permissions on the directories below the root.  I had to select permissions on the root directory and propigate the settings to all the directories anf files below, even though the everything had the right permissions, before it would work.

Cheers and thanks for the info about the use name.

This was a great help, my problem was slightly different, but it had the same symptons and this put me on the right track.

I had used the same hosted database for testing the site on my local machine.  A straight copy of the working site to the dotnetnuke files to the server didn't work, so I deleted my "dotnetnuke" tables and ran Install mode=install again.  However, I had not deleted the ASPNET tables, so they still contained the Admin and Host user id's, which appears to have caused the Portal to fail to install.

I created a Install\Portal\Portals.resource with just the portals section of the Install\DotNetNuke.install xml file, and ran install.aspx?mode=addportal.  This created the portal for me and I am able to log onto the portal.   Unfortunately, I do not seem to be able to log onto the Host account (addportal added another Admin user account that works, but not another Host account).