One of our MOSS servers installed on Windows 2008 had the following periodic Application Log entry:
Tracing Service failed to create the trace log file directory 'D:\Program Files\Common Files\Microsoft Shared\Web Server Extensions\12\LOGS\'. Error 3: The system cannot find the path specified.
Interestingly enough there were files in the LOGS directory so at one point or another this was working.
This post suggests it is a lack of permission on the LOGS directory for the WSS_ADMIN_WPG group, but this was not the case for this server:
Although, the issue was a permission error on the LOGS directory, the account lacking permissions was the Log On account on the Windows SharePoint Services Tracing Service (SPTrace). After giving this account Modify permissions on the LOGS directory, the issue was corrected.