Local system account doesn't have write privileges?

Right now, our Visual SVN server is set to run under as Local System. I've got a post-commit hook that writes something to a file on the server and then emails that file. For whatever reason, that account cannot write to the file. If I change the service so it runs under my login, the file writes fine.

I thought Local System could do damn near anything. I even went as far as setting the permissions on the file so "Everyone" had full control and when I commit, the file still isn't written to.

I give up.

It only has rights on the Local System not the domain.

We're not talking about a network here. The file I'm trying to write to is on the same machine as VisualSVN.

Does system have full access to the file?

run filemon and see what happens when it tries to access that file.

Yes, the SYSTEM account does have full access. Inherited from higher up.

According to Process Monitor, NT AUTHORITY\SYSTEM is the user who calls the post-commit.bat file. Looking directly at the file, a WriteFile operation comes back with a result of FAST IO DISALLOWED. Not sure if that's what is breaking. I can delete the file and the file gets recreated, but nothing gets written to the file. Very weird.

Here's the exact line that isn't working in the batch file.
Basically, the svn program is called, getting the log contents of a specific revision and then dumping that into the file. The weird part is the command that creates the file and puts some head stuff in it works perfectly.