I'll mention this more in a future post, but I decided to repave my machine last night.
I installed Virtual Server 2005 and then installed XPSP2 afterwards. Whenever I tried connecting to the site, I would get access denied. Luckily, it seems Bryant already ran into this problem and has a solution here. If you are having the same issue, you just need to go into Component Services and change the Launch and Activation Permissions to 'Allow' on the Virtual Server package.
Also - I wasn't having this issue before the repave. It seems that you won't have these issues if you install VS2005 after SP2.