"Path Not Found" issue with AjaxFileUpload and IE

Hi all

I hope someone has run into this issues and has resolved it; I am at my wit's end!

I have an ajax file upload control that works just fine when tested in FF and Chrome but not in IE (9, 10 or 11). 

This is an Intranet application that requires users to log in (uses form authentication).

<authentication mode="Forms"><forms name=".RSSAuthCookie" loginUrl="Account/Login.aspx" timeout="45"/></authentication>   <authorization><deny users="?"/></authorization>

Following lines in HttpHandler section:

<add verb="*" path="AjaxFileUploadHandler.axd" type="AjaxControlToolkit.AjaxFileUploadHandler, AjaxControlToolkit"/><add verb="*" path="CombineScriptsHandler.axd" type="AjaxControlToolkit.CombineScriptsHandler, AjaxControlToolkit"/>

When run, I see the throbber throbbing endlessly, "Upload" button changes to "Cancel" momentarily and goes back to"Upload" and I get:

Could not find a part of the path 'c:\windows\Temp\_AjaxFileUpload\964318F2-3FF1-1890-3720-C2A5728A0485'.

Followed by:

Microsoft JScript runtime error: Exception thrown and not caught.

doneAndUploadNextFile: function (fileItem) {        
/// <summary>         
/// Mark fileItem as uploaded, and upload next file in queue.        
/// </summary>        
/// <param name="fileItem">Uploaded File</param>                

var xhr = new XMLHttpRequest(),             
self = this;                
xhr.open("POST", "?contextKey="+ this._contextKey +"&done=1&guid=" + fileItem._id, true);         

xhr.onreadystatechange = function (e) {
    if (xhr.readyState == 4) {                 
        if (xhr.status == 200) {
            self.raiseUploadComplete(Sys.Serialization.JavaScriptSerializer.deserialize(xhr.responseText));
            self._processor.startUpload();
        } 
        else {                     
            self.setFileStatus(fileItem, 'error',Sys.Extended.UI.Resources.AjaxFileUpload_error);                     
            self.raiseUploadError(xhr);                    
            throw "error raising upload complete event and start new upload"; <--- This line is highlighted            
         }             
    }         
};        
xhr.send(null);     
},

For testing purposes, I added both ASNET user and Network Service access to temp folder so they should be able to write to that folder.

I cannot remove "deny users='?'" as some suggested (authetication breaks). The control is not in an invisible panel. Not sure what IE's issue is or if the control's developers tested this thoroughly in IE.