Unable to start debugging on the server

Tech-Archive recommends: Fix windows errors by optimizing your registry

I spent hours to try to trouble shoot this problem. Read many threads
and tried to follow all recommendation but still to problem persist:
OS: Win XP Pro SP2
Framework 1.1 version 1.1.4322
VB.NET Microsoft Visual Basic .NET 69462-270-0000007-18775

I am able to start debugging on a simple console project.
When I am trying to run a simple web project just created with one aspx
web form I get
"Error while trying to run project. Unable to start debugging on the
server. Click help for more information" (No additional information in
the error message such as access denied").

I went through the threads and checked all the obvious issues such as
Adding users to Debugger groups.

I ran finmon and have some strange messages created by devenv.exe:
"C:\Program Files\Microsoft Visual Studio .NET
2003\Common7\IDE\http:\localhost\biblio\webapp NAME INVALID Options:
Open Directory Access: All"
Why devenv.exe is trying this path?
"C:\Documents and Settings\Moshe\VSWebCache\MYINS8500
\biblio\webapp\obj\Debug\webapp.pdb NOT FOUND Options: Open Access:
All"
I understand that this is for offline working, which was not the case.
"OPEN
C:\WINDOWS\Microsoft.NET\Framework\v1.1.4322\cvtres.exe.Manifest NOT
FOUND Options: Open Access: All"

Please help!
What should be the next steps to trouble shoot this issue?

Thanks
Moshe

.