Failed to create folder

I have Plesk on windows server 2003. Installation of PP went fine, no major problems at all and it worked at the first attempt. However uploading is not working. I get this message when uploading any file:

Failed to create folder 'D:\inetpub\vhosts\mysite.com\httpdocs/upload/bd90e/dfa47/8e7a0'

I've checked permissions 100 times. Avatars and logos upload fine.

please help.