Are you using IIS 6? If so, the FTP site may have been created in "user isolation mode". When in this mode, users will not be able to log in unless they have a home folder.
To create a home folder for local users you need to create a folder underneath the FTP root called "LocalUser". Then below that, create a folder with the same name as the user name. This folder will act as the home folder for that user.
For example, suppose the root folder of the ftp site is at c:\ftproot\ and you have created a local user called "bob" who needs to log into the ftp site. You should create a folder called:
c:\ftproot\LocalUser\bob\
Bob will then be able to log into the ftp site. He should log in just as "bob".