the trust level is defined in web.config. By default its set as

<trust level="Medium" originUrl=".*" />

you can change it to Full, but you will need to recycle/restart the application pool if you do that.

However by default DotNetNuke works in medium trust so this is not typically required, unless you use the actrive directory provider (which requires full). In addition the type of permisssion failure is usually different e.g. an SMTPPermission or ReflectionPermission. An AspNetHostingPermission typically only occurs if your site is running in Low permissions (as it does not support asp.net) or in the case of the blocked files I mentioned before. I can only suggest you try again or try unblocking individual dll files one at a time in the BIN folder (please make sure you recycle the app pool afterwards also)

you can find the machine.config files within C:\Windows\Microsoft.NET\ -you navigate to the relevant folder for your framework version and compiled e.g. 64bit . net 4.0 would be Framework64\v4.0.30319

As to your issue, if the local machine is fine then the most common other related error of this nature is caused when the files physically exist on another machine (e.g. you have your website pointed to a UNC folder) - this is because .net does not know of trust the other machine - typically trust is added via the .net UI tools or via the CASPOL utility - http://support.microsoft.com/?id=910449 covers a few of these