I came across an issue recently where the AIF web services were successfully generated and running however the business connector proxy account was changed and it caused all the hosted web services to fail. They were running Microsoft Dynamics AX 2009 AIF Web services on Windows Server 2003 R2 SP2 (x86).
After successfully changing the Business Connector proxy account in AX to a new user (Administration -> Setup -> Security -> System Service Accounts), we also had to make the following changes on the server hosting the web services
(1) Add the new account to the local IIS_WPG group (applies only to Windows Server 2003)
(2) Gave the new account Modify NTFS security permissions to the following two folders: “C:\Windows\Microsoft.NET\Framework\v2.0.50727\Temporary ASP.NET Files” and “C:\Windows\Temp”
(3) Gave the new account Read & Execute NTFS security permissions to the following folder where the AIF web services are created: “C:\Program Files\Microsoft Dynamics AX\50\AifWebServices”
(4) Changed the IIS Application Pool (MicrosoftDynamicsAXAif50) account used by the web services to the new account
(5) Ran IISRESET.EXE for the changes to take effect
NOTE: The above should also apply to Microsoft Dynamics AX 4.0 Web services, except the application pool name and path for for where AIF web services are generated by default may vary.