The Template Persistent Cache initialization failed for Application Pool

This big bad error message kept propping up in the event log. I didn't pay it much attention until an ASP site on the server crashed.

The Template Persistent Cache initialization failed for Application Pool 'App Pool Name' because of the following error: Could not create a Disk Cache Sub-directory for the Application Pool. The data may have additional error codes..

Apparently this turned out to be a permissions problem common to machines that run both a domain controller and an IIS, w-hich is typically what SBS machines do. The solution can be found here