If the xml file lives on the same web server you don't need to use a WebRequest at all, thats only needed for retrieving remote xml.
You can open an xml file with syntax like this:
XmlDocument doc = new XmlDocument();
doc.Load(pathOrUrlToFile);
There are other ways of doing it to using an XmlTextReader and then passing that into the constructor of the XmlDocument, etc.
However if there really is some permission problem on that file you may still get an error. If that happens then you should check the file system permission on the file and make it at least readable by aspnetuser (on XP) or IIS_WPG user on Win 2003
Hope it helps,
Joe