Hi Farah,
The problem is it wants to create that file but it has not got write permission so it throws access denied error. The documentation tells you how to setup file permission. You need to make sure the aspnet user (assuming this is XP not Win 2003 server, on Win 2003 server its the IIS_WPG user who needs permission) needs read permission on the whole web folder and it needs write permission on the Data folder so it can write files there.
You could comment out the BannedIPBlockingHttpModule in the HttpModules section of Web.config to get past this error, but it will just change the error to the next thing that tries to write to the Data folder.
In Windows Explorer, you right click the Data folder and choose properties, you should then see a Security Tab, if you don't see this tab then google for XP simple file sharing to learn how to make that tab appear.
If you post any more errors or questions please indicate more about your system, like what OS and what version of MS SQL.
Hope it helps,
Joe