Have you tried this only once? Sometimes I have seen this error and it did not show up again after a reboot.
If you have a bad profile, you can create a new user and use that. You can easily copy your desktop, favorites, My Documents etc... from your old profile by going into C:\Documents and Settings\UserName. The UserName would be your original profile, not the new one you create. Go into the Desktop folder, select it all, and copy to the desktop of your new profiles. Do the same thing for My Documents and Favorites. I would not do a full profile copy because if your profile IS corrupt, you will just end up copying the issue to the new one.
It may be the same problem described in the w3k server knowledge base article http://support.microsoft.com/kb/935649 "Windows cannot load the user's profile but has logged you on with the default profile for the system". I found that the registry change provided fixed the problem on an XP media center edition so may work for you (look for event 1505 and 1508 in your systems application log ).
That registry hack also worked to correct the same problem that I encountered yesterday with a laptop running Windows XPSP2. I was running in stand-alone mode but, with some difficulty and by using various techniques, was able to get into SafeMode so that I could use regedit to make the registry changes. Nothing else seemed to work, so I figured that hack was worth a try. I'm keeping my fingers crossed to see if the fix holds up over an extended time. It would be helpful if MS would indicate that the problem applies more broadly than just to Windows Server 2003!