By default, O-DL allows you to store your files under the root/Portals/x flders on your webserver. For such a default setup, there are no permission setup requirements other than the DNN ones.

If you want to store your files in a repository on a different server, then you have to make sure that the right credentials and permissions are passed along and assigned to the share that you will be accessing.

This article shows one of the possible setups.

UNC Share
A directory shared in a remote machine can be accessed using UNC name such as \\RemoteMachineName\SharedFolder.

 
Virtual Folder
IIS provides a mechanism to point to the UNC share by creating a virtual folder with an alias pointing to UNC .Please note on 'Connect as user' specify just user name and password -- don’t give Remotemachinename\user.
 
 
Uploading using asp.net
 
Asp.net provides an easy upload feature which many of us have used .The problem happens when we try to upload a file using this virtual folder pointing to UNC share. Asp_wp account does not have access to the network resources by default.

For asp.net to run in a user context you need to add
<identity impersonate="true" userName="UserX" password="Password123"/> 
 in the web.config to impersonate
 
Let us say that we have a Web server A and Fileserver B .We have mapped a virtual directory RemoteSharedFolder using IIS and pointing to share as 
\ \FileServerB\SharedFolder (no spaces)
 
We know for a fact that we need to impersonate because the aspnet_wp account would not have access to the folder and if we do not have a network user to access the resource follow the simple steps below:
 
1 Create a local user account in webserver say UserX with password Password123
2. Create a local user account in File server with same name as above and same password UserX and Password123
3. If you are using windows xp or windows .net server 2003 you don’t need do anything 
3a. [If you have Windows 2000 go to local security setting and browse to “User Rights assignment” and locate “Act as part of Operating System” policy. Double click and add “aspnet_wp” account
Restart IIS service]
 
You may need to set permission for impersonated user for full control on C:\winnt\Microsoft.NET\Framework\v1.0.3705\Temporary ASP.NET Files so that the stream read from client as temporary stored in this folder till it is transferred to the Virtual Folder

original article:
http://aspalliance.com/336_Upload_Files_Using_ASPNET_Impersonation_and_UNC_Share.all

There are other (more secure) ways to implement UNC share access as described in this article:
http://msdn.microsoft.com/msdntv/transcripts/20031120ASPNETEOTranscript.aspx