I am having log4net permission issue from ASP.Net 4.0 web application to write to application event log, when the user is not in administrator group in Windows 2008 R2 and I
Maybe I'm missing something here but it looks like a simple permissions issue for that user. By default they don't have access to write to the application log file. I know you played around with the permissions but I'm not sure exactly what permissions you assigned.
Here is a Microsoft article on doing exactly what you want to do to overcome the error you are seeing:
http://support.microsoft.com/kb/2028427
If you follow this, you should solve your issue. I hope this helps.