I ran into this error after upgrading someones PC from IE7 to IE8. It took me a while to find the right fix so I thought I’d share it.
Navigate in windows explorer to c:\
Right click on “Documents and Settings” and go to Properties
If “Read-Only” is checked or even grayed in under “Attributes” then uncheck it and click apply. Now restart IE8 again, and the problem should be solved. It is most likely a permissions issue and this fixes it.