I saw this from Bill staples..
"The ApplicationPool identity also needs access to the share, so it
can read any web.config files that might be there. This is a change
from IIS6 where all configuration was in the metabase and the worker
process did not require access to the share.
If your Web server and file servers are in a domain, you can grant
machine$ read access and the default AppPool (which runs as
NetworkService) should be able to conntect. If you have a customer
AppPool identity (domain user or sync'd account), grant that user read
access."
I removed everyone permissions and added a machine$ account for the webservers. The error has gone. Why one web server was ok and one was not I dont know. Both were looking at the same share. same user , same web page!
What security implications (read only) has adding the machine account got?