ok well it must be machine.config because if machine.config is set to medium then setting to full in web.config won't work.
best to comment it out in web.config and track it down in machine.config
also is this IIS 6 or did you install IIS7?
be aware if you have multiple versions of .NET on the machine they each have their own machine.config, make sure you are looking in the 2.0 .NET folder
on my machine I have folders for 1.1 framework up to 3.5 and each is in different folders
2.0 on my machine is in:
Hope it helps,