OK, Finally got rid of the error after several attempts at modifying permissions and running apache as a separate user with all required privileges with no avail, by creating a profile folder for Desktop
under
C:\Windows\SysWOW64\config\systemprofile\Desktop
Found this solutions in msdn forum http://social.msdn.microsoft.com/Forums/en-US/innovateonoffice/thread/b81a3c4e-62db-488b-af06-44421818ef91?prof=required
Hope this will help someone using these modules in future.
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