For anyone wanting to use a WebDAV folder from a Windows Server 2003 machine, This KB Article will help.
From the article:
SYMPTOMS
When you try to connect to a Web folder from a Microsoft Windows Server 2003-based computer by using Microsoft Internet Explorer, you may receive the following error message.
Internet Explorer could not open http://ServerName as a web folder.
Would you like to see its default view instead?
Additionally, if you try to connect to a Web folder by using My Network Places, you may receive the following error message.
The folder you entered does not appear to be valid. Please choose another.
This is caused by Windows Server 2003 not having the appropriate sub-systems installed... Win2k3 cannot open a WebDAV folder. To fix it, the easiest way is to copy the "Webflders.msi" file from the System32 directory of a Windows 2000 or XP machine onto the Win2k3 machine, and run it. This will allow Win2k3 to open the WebDAV folder.
RESOLUTION
Install the Webfldrs.msi package that is available with Microsoft Windows 2000 or Microsoft Windows XP
Install the Webfldrs.msi package that is available with Windows 2000 or Windows XP. To do this, follow these steps: 1. Copy the Webfldrs.msi Windows Installer package that is located in the C:\WindowsFolder\System32 folder from a Windows 2000-based computer or from a Windows XP-based computer to the C:\WindowsFolder\System32 folder that is on your Windows Server 2003-based computer.
2. On your Windows Server 2003-based computer, click Start, click Run, type webfldrs.msi, and then click OK.
3. Click Next four times, and then click Install Now.
4. Click OK to complete the Webfldrs.msi installation
Hope this helps someone else not waste 2 days trying to re-configure a WebDAV folder on Windows Server 2003, like I did. :)