<p>Recently I was working with generating a PDF from Crystal Reports through a webform.  It was failing, which I determined to be caused by the permissions settings on the c:\windows\temp dir.   I gave the Network Service account full access to this folder, which promptly fixed the issue.   But is there a reason the Network Service account didn't have these permissions by default?   </p>

<p>Rick Strahl asks this question <a href="http://west-wind.com/WebLog/posts/112111.aspx" rel="nofollow noreferrer">here</a>.  It sounds like there shouldn't be any issues with doing this, but Rick wasn't clear on why the default is set that way.      </p>

<p>Web Server is Windows Server 2003</p>

These days, the default option will tend to be the more secure one.  I don't think there's any other reason.
I've had the same issue as you, and in my environment just gave the permission and moved on.
This post
suggests it is the fault of Crystal Reports, which is explicitly referencing %WINDIR%\Temp instead of using an API such as Path.GetTempPath().  In fact I have seen Path.GetTempPath() return %WINDIR%\Temp when running under the Network Service account on Windows 2003.