Okay, at least we know what the problem is. You need to re-create the site. You can do this is the Sharepoint Central Admin site (should be a shortcut to it in 'Administrative Tools' on the AT). Once you have the Central Admin site up you should:
1. Click on 'Create a top-level web site'
2. Select the virtual server to create the site on (usually 'Default Web Site')
3. In the following page, under 'Web Site Address', click the radio button that say 'Create site at this URL:' and select '(root)' from the 'URL path:' picklist.
4. Fill out the rest of the fields as you normally would (user name, email address, etc).
5. Click 'Ok'. It should take you to a page that says 'Top Level Site Successfully created'. There should be a link to the site at the bottom of the message, click on it.
6. This will take you to a page where you can select your template for the site. I would just select 'Team Site' and click 'Ok'.
You should now have a new top level site (verify by browsing to http://<servername>. Re-try creating a new project and see if it works (it should).
Good luck!
-Dennis |