Hi Rad,
Based on the permissions, you are running in Full Trust mode, which is the default and allows easier configuration. The Network Service account was introduced with Windows Server 2003 and does have credentials for network access to different servers in the same W2K3 Domain. Lucene requires Full Trust to work.
Having said that, I need to put on my IT Consultant hat for a moment. Full Trust and the Network Service account work. However, in my opinion, such a setup is only appropriate for an Intranet (non-Internet facing) application. It would be more secure to run the web site in Medium Trust, under a unique application pool identity using a low level domain account. Doing so is not something I could explain in a forum post. Also, Lucene does not work in Medium Trust, and you would have to use IS on the SQL Server. You and your IT department need to evaluate what is best for your business.
OK, I feel better now...
Here are two reference MSDN articles that may be of use to you:
For Network Service Account: http://msdn.microsoft.com...ibrary/ms998320.aspx
For Creating separate service account: http://msdn.microsoft.com...ibrary/ms998297.aspx
For the Network Service Account to be used to access a network share, you must create a share on the target server (you cannot use the default administrative share for a drive), and give both Share permissions and NTFS permissions to the Network Service account. You may want to hide the share from general network browsing by using a $ in the name: e.g., DMXSHARE$
For share permissions, remove the default Everyone group, then give the Network Service account Change permissions so it can read/write, and on the folders themselves give the account at least NTFS modify permissions at the root folder that is shared. (also add whatever administrative share and NTFS permission that are required.)
At this point, you should be able to enter the repository location in DMX like this: \\myserver\dmxshare$
If things are set correctly, you should be able to add files to DMX folders now. I don't have any real experience with Lucene, but my understanding is it should work in this configuration.
Hope this helps.
Rob Ralston
SilverBullet Technologies LLC