The HTTP Error 404 ....... again :-(

I know that this question has been asked many times, but I have tried everything and nothing seems to work. So let me start from the start and say what I have done (apologies for the length of this thread - but it might help other people to see all the steps in one thread).

Problem:
When I try to start a new ASP.NET Web Application on my Windows 2000 PC, I receive the following error:

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The default Web access mode fo this project is set to file share, but the project folder at 'http://localhost/WebApplication1' cannot be opened with the path 'c:\Inetpub\wwwroot\WebApplication1'. The error returned was:

Unable to create Web project 'WebApplication1'. The file path 'C:\Inetpub\wwwroot\WebApplication1' does not correspond to the URL 'http://localhost/WebApplication1'. The two need to map to the same server location. HTTP Error 404: Object not found

What would you like to do?
1) Retry using a different file share path
Location: c:\Inetpub\wwwroot\WebApplication1
2)Try to open the project with Frontpage Server Extensions.
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When I try 1), it gives me the same error.
When I try 2), it give me the same error.

After searching the net, I found two possible solutions:

1) Configure the MIME types. This is described here:
http://www.dotnetcoders.com/web/Articles/ShowArticle.aspx?article=57&p=true
and here
http://support.microsoft.com/default.aspx?scid=kb;en-us;327283
and here (!!)
http://support.microsoft.com/default.aspx?scid=kb;en-us;817264&Product=vsnet

2) Add tmp files to the App Mappings in IIS by doing the following:
Start -> Settings -> Control Panel -> Admin Tools -> Internet Service Manager
Expand you computer's name, and right click on Default Web Site, and go to properties.
Go to the 'Home Directory' tab, and then click on the 'Configurations' button.
Select the .asp extension, and click on Edit. Copy the file location in the Executable field, and then click on Cancel.
Click on Add, paste the file location in the Executable field, and type '.tmp' in the Extension field. Click on OK three times.

After another search, I came to this:
http://support.microsoft.com/default.aspx?scid=kb;en-us;831210
which was as useful as a bullet in the eye !!!

Other information that might be useful:
I have all the service packs for Visual Studio 2002 and Windows 2000. I think I have the latest version of IIS (but I'm unsure on how to check this).

Can anyone help me please.

JagTry the following, if you haven't alread done:

Start the Internet Information Services. Make right click on Default Web Site, go to New -> Virtual Directory and follow the Instruction to make your directory work.
Tried it, but I still get the same error :-(

Jags
Ok, found it. It was a problem with my proxy server. Here's what I did to resolve the problem:

In Internet Explorer go to:
Tools -> Internet Options -> Connections Tab -> LAN Settings button
Make sure the box at the bottom saying 'Bypass Proxy Server for local addresses' is ticked.

Jags