What version of Windows - Server 2003?

This is *very* similar to the problem I described with IIS - CMD.EXE was not allowed to run by the web server (in my case IIS) even if it resided in the CGI-BIN directory and had proper permissions (everyone - full permissions).

Is this a test system - isolated from the outside world? Try running the Apache service as admin and see if that fixes it - if so, you're experiencing the same issue I was. Obviously running as admin is *NOT* the solution, but it may help diagnose the anomoly you're seeing.