Unable to create task sequence media - Privilege not held by Client

We have been getting "Privilege not held by Client" error when trying to create boot media from the task sequence wizard.

Here is the information from the CreateTSMedia.log

 ======= CreateBootMediaEx2 invoked ======= CreateTsMedia 10/28/2011 9:41:13 AM 4720 (0x1270)
---------------------------- CreateTsMedia ---------------------------- CreateTsMedia 10/28/2011 9:41:13 AM 4720 (0x1270)
Requested output path: C:\temp\test.iso (CD) CreateTsMedia 10/28/2011 9:41:13 AM 4720 (0x1270)
Temp Directory C:\Users\HAI~1.DIE\AppData\Local\Temp\_tsmedia_4720 created CreateTsMedia 10/28/2011 9:41:13 AM 4720 (0x1270)
Setting up Install Toolkit CreateTsMedia 10/28/2011 9:41:13 AM 4720 (0x1270)
Opening image file C:\Users\HAI~1.DIE\AppData\Local\Temp\_tsmedia_4720\Cache\PD100013\boot.PD100013.wim CreateTsMedia 10/28/2011 9:41:18 AM 4720 (0x1270)
Applying image 1 to volume C:\Users\HAI~1.DIE\AppData\Local\Temp\_tsmedia_4720\Toolkit CreateTsMedia 10/28/2011 9:41:18 AM 4720 (0x1270)
Unable to apply (0x80070522) CreateTsMedia 10/28/2011 9:41:18 AM 4720 (0x1270)
Closing image file C:\Users\HAI~1.DIE\AppData\Local\Temp\_tsmedia_4720\Cache\PD100013\boot.PD100013.wim CreateTsMedia 10/28/2011 9:41:18 AM 4720 (0x1270)
Failed to create media generator (0x80070522) CreateTsMedia 10/28/2011 9:41:18 AM 4720 (0x1270)
CreateTsMedia failed with error 0x80070522, details="" CreateTsMedia 10/28/2011 9:41:18 AM 4720 (0x1270)

 Here are the steps I have tried to resolve this:

check ntfs/security permissions of the temp directory as well as the source directories of the image.

checked that i am in the local administrators group

checked that i am in the manage audit and security log - in local security policy.

i have tried running as local administrator.

i have tried running the following command

mkdir C:\mout

imagex /mount boot.wim 1 C:\mount

from the MDT Deployment Toolkit command prompt to mount a wim to the C:\mount folder.

That also gives a privilege not held by client error.

Also this error seems to have also occured in our test environment as well as our production environment.

Any assistance is highly appreciated.

Thank you.