I am trying to convert a Windows Forms solution to a web application, i.e. I am trying to integrate the Windows app with a web application project that is being set as the default project. The problem I am facing is that I am getting an exception every time the Windows solution classes try to write on the hard disk or create directories. Those functions were running normally under the Windows app; it is enough that I change the default project to that of the Windows forms application to get the code functioning normally again.
I tried adding File.IO.Permissions at the level of assemblies and classes and still I am not able to get this to work!!
Any ideas??

The winform app is almost certainly running under the security context of whoever is logged into the computer or network. You, a lot of the time. The webform code runs as whatever user IIS runs as, probably network service. Your best bet is probably to grant that user permission to the folders it needs to operate on. You could change the user for your application, instead, but that carries some risk; if someone hacks your app, they can get more privileged access to the server.

Have you looked at Impersonation yet? This could help:

http://www.netomatix.com/ImpersonateUser.aspx