The project location is not fully trusted by the .NET runtime. This is usually because it is either a network share or mapped to a network share not on the local machine. If the output path is under the project location, your code will not execute as fully trusted and you may receive unexpected security exceptions.
I have received the above error several times when opening solutions off a local drive. This happens on projects downloaded from the web. Anyway I found a great post discussing the problem. The post also includes a utility that fixes the problem.
[ZoneStripper]