ASP.NET 2.0 Application and Windows Service not running simultaneously on SQL Server Express 2005 Edition

The application is developeed in ASP.NET 2.0 and uses a database of Sql Server 2005 Express Edition. A windows service running on the machine too updates the DB every 30 seconds. Both the applications when run seperately, i.e when yu just run the ASP.NET web application it works prefectly and when you run the service without browsing the site, the service too runs perfectly. The problem arises when you run both at the same time, i.e while the service is running you start browsing the site, or while the site is begin browsed, you start the service, the later [ website or the service which ever was started last throws up error] throws up the following error "Login failed for user NT Authority/System" The most funny part is that when the same application is run on the same webserver by changing the DB to a Sql Server 2000 its works like a charm. The operating system beign used is Windows 2003. If required we will provide RDC details. I need it fixed ASAP.