I've been perplexed by this before as well, and tried everything else mentioned in all previous replies, to no avail. In my case, I was trying to use a local user that I created myself (for a developer machine), but my problem was that I had not unchecked the "User must change password at next logon" checkbox on the properties of the User in the Computer Management tool when creating the User. This is yet another scenario that can result in this very generic error message from IIS. Unchecking this fixed the issue immediately.
