I don't have anything really positive to tell you.  I've got to reinstall on one of my machines and I'll try to mess with the permissions a bit to reproduce your problem.  It's interesting.  :)  If I can and then I can figure out what need to change I'll post it here.

I've haven't really heard anyone having a really easy time installing DNN on GoDaddy servers.  There is a prety big thread on here somewhere where there was one person that figured it out.  Personally I would have switched to a more DNN friendly hosting provider as soon as I found out I could put it in Webroot.  I use Brinkster and I've heard that PowerDNN is good. Both are really easy to set up on and tech support will set up your permissions anyway you want them.

I've figured it out... This will close this thread.

It was the way in which you setup godaddy. You must setup, through directory management a directory that you wish to use with proper permissions before you upload the file structure, not after.

thx