The error message in the image...virtual root.  Go back and see if if NT AUTHORITY\NETWORK SERVICE really has permissions everywhere else.  Do all your other sites run under this identity?  If possible, switch identities. 

Will a regular .aspx page get served from that site, e.g. you should be able to create a file with some text in it and name it something test.aspx.  Then, go to that site in the browser, e.g. http://localhost/dnnsite/test.aspx and that page should get served.  You should get the same error if it's really an identity permission error.

Object Reference Error / other error:

ASP.NET likes that error...I've even received that error on a working web page, the first time it JITs it.  So, it's not always a programming error.  Though, I suspect some object really is not being created.

Last time I got this error, I repeated all the steps again, going as far as dropping the database (new install).

My steps to troubleshoot would be:

1.  If you have MSSQL Profiler, run a trace otherwise; otherwise, if you're using SQL Server Express, see if you can see an account accessing your DNN database.

2.  Insert a trace statement in your web.config after the <system.web> tag:

    <!--  APPLICATION-LEVEL TRACE LOGGING
          Application-level tracing enables trace log output for every page within an application.
          Set trace enabled="true" to enable application trace logging.  If pageOutput="true", the
          trace information will be displayed at the bottom of each page.  Otherwise, you can view the
          application trace log by browsing the "trace.axd" page from your web application
          root.
    -->
    <trace enabled="true" requestLimit="10" pageOutput="true" traceMode="SortByTime" localOnly="false" />

3.  Try a different identity setting for the application pool.  Make sure it's put in the IIS_WPG group.  

4.  Also check to see that NETWORK SERVICE has permissions in the database.