kfblake:

Not sure of what your problem is but wanted to give you some hints because it is indeed unusual.

First, just for the sake of testing, add the main site to your "Trusted' sites if it is not already there.

Also, if you look under your "Portals" directory, do you have multiple directories there?  You may want to check the NTFS rights for the IIS account used by DNN, per the installation document in this link (http://www.dotnetnuke.com/LinkClick.aspx?fileticket=gOZGbvrVKJw%3d&tabid=478&mid=857), it should be:

In Windows 2000/IIS5 the account to use is the {Server}\ASPNET User Account,
in Windows 2003/IIS6 the account is the NT AUTHORITY\NETWORK SERVICE User Account

The required permissions for the various directories in DotNetNuke are as follows:
    Root (and all child folders) – Read Access
    Root – Write Access (and Modify Access if expecting to create child portals)
    DesktopModules – Write, Modify Access (if installing 3rd party Private Assemblies)
    Portals (and all child folders) – Write, Modify Access (to allow File Manager access and Skin/Container access)

See if after making sure these settings are in place you can create a new portal.  If you have to adjust any of these settings, I would recommend restarting IIS with "iisreset".

Carlos