web development in ASP.net 401.3 error?

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here's the deal. i have a web service spitting out xml and a web application that reads the xml into an office web component pivot table. However, in order to do so, I need to add a web reference to the application. That's the problem.

When I make the attempt, I receive a 401.3 "Access is denied" error. I'm clueless as to how to fix this. I've already scoured the net. I've checked the IIS settings for read access to everything in the web service directory. I'm running .net framework 2.0 and xp pro. The web service works when I use visual web developer 2008, but otherwise wouldn't. Now I'm asking here.

If you have any ideas, then I would really appreciate hearing them. Better yet, if you know how to combine the web service / app into one piece of code, then that would be great. Thanks in advance!

Again, here's what I'm attempting to do.

1. sql code / pull X from DB
2. convert that to an xml stream compatible with OWC
3. read the xml into an OWC pivot table
4. display the OWC pivot table
5. allow the sql code to be changed dynamically to pull different sets of data
 
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