I usually hate posting these types of questions as normally I find that the best way to really learn is to figure out the answer yourself.
However, I need an answer
Just as an FYI to anyone that might have the same problem - I got this exact error message and couldn't figure out what was wrong since I hadn't changed any settings on my local box.
I realized after a couple minutes that I had accidentally opened the project from a network share on Windows Server 2008. Of course the permissions weren't correct! Really stupid move, but if it helps someone I am willing to be humiliated :)
I am posting this in case it helps anyone else. Be warned before they move an existing ASP.NET site hosted by your provider to another sever.
MAKE SURE YOU ASK THEM ABOUT WEBPERMISSIONS AND TRUST LEVELS.
This was my providers reply....
"Thank you for your email.
It's failing because WebPermission isn't available in a medium trust environment.
We can't make any changes to these servers at the moment, since we plan to migrate all sites on to a pair of new clusters by the end of this year. I'm confident that the new Windows cluster will have WebPermission available, since it's enabled on the current Namesco Windows cluster. "
So they expect my client's site to be offline and losing business until the New Year.
Not sure if this will help, but I once had a client with the same type of problem. Their webhosting company made some changes, resulting in their website throwing similar kinds of errors. Managed to get things working again by adding the following just inside the System.Web section in web.config:
<trust level="Full" />
If this doesn't solve your problem and the webhosting can't fix things on their until the new year, I'd seriously consider switching hosting providers.
Is your web application calling a web service or accessing external web sites? If so, you might need to talk with your hosting provider and ask for the URI to be added to the list of allowed connection endpoints.