Allan,

Assuming that all the Windows security configuration (NTFS permissions etc) are OK, and trust is the same in both environments, and everything works fine through the DNN File Manager, it kind of points to the code in the faulty module. Do you have access to the sourcecode for this module - the exception in the DNN Event log might refer to a line number which is really helpful. If the source isn't available then perhaps try using Reflector on the DLL. If you can see which FileIOPermissions are actually being requested it might give you a further clue as to what the problem might be. It's possible that some combination of permissions is valid in .Net 2.0 but not 3.5.

Good luck!

Rhys