Problem with Impersonation

All,
     I have a web application that creates folders on a file system.  The web site uses Windows Integrated Authentication and Impersonation as the following entries from the web.config file show:

<authentication mode="Windows"/>
  <authorization>
   <deny users="?"/>
  </authorization>
<identity impersonate="true" /> 

It creates the folder in a loop using the code below:
For li_IX1 = 0 To pa_Sub_Directories.Count - 1
     ls_WorkSubDirPath = IIf(pa_Sub_Directories(li_IX1).ToString.StartsWith("\"), pa_Sub_Directories(li_IX1).ToString.Substring(1), pa_Sub_Directories(li_IX1)).ToString
     Directory.CreateDirectory(ps_FullP ...