I'd check to make sure the Authentication (basic) and Authorization sections are properly configured.
Here is how I use FTP user isolation and it works great.
1) Create a dummy FTPRoot folder
2) Create a Master FTP site. (just an FTP site) No http.
3) Create a vdir called 'LocalUser'. map the 'localuser' virtual directory to your dummy folder (grant authenticated users 'list' only permissions)
4) Under the LocalUser vdir, create your specific user accounts mapped to the appropriate location (these should be vdirs)
5) Under the User isolation, select the first option (disable global directories)
6) Under the Authentication section, enable basic authentication if you are using windows accounts.
7) Under the authorization, grant the user permissions.
8) Grant appropriate folder security for your test user.
9) Test it out.
See if you get logged in.
Steve Schofield
Windows Server MVP - IIS
http://weblogs.asp.net/steveschofield
http://www.IISLogs.comLog archival solution
Install, Configure, Forget