Well if it's setup with IIS then it might also be using the Network Service account for the temp files. IIS_WPG

C:\Documents and Settings\NetworkService\Local Settings\TEMP

Not saying that is the issue as I've not had time to look at it, but something to consider maybe.

Hopefully tonight (if Wife let's me have time) I can track down my IIS install issue and then check on the ImageMagic stuff.