Yes there are hundreds of files created during the script run, I'd say on a rough estimate, probably 2000.

We've run the job through Query Analyzer, osql and as a...

The Administrator has full permissions and full effective permissions also. Any other possibilities?

The local admin account was set to start SQL in Enterprise Manager.

Properties dialog of Local Server -> Security Tab->

Under "Startup Service Account" select "This Account". This is where the...

Regarding the response from Cory,

We have restarted the service (and machine more than a few times ) because SQL was hogging all the...