It was permissions. I'm using a specific user for the application pool identity and this user was given access to the App_Data folder with Modify permissions. This did not seem to work at first even after an IIS reset but I tried it in IE and it seemed to work. May be delayed due to caching perhaps.
And it seems the issue is not resolved yet. I was using a single document to test this issue and while I am able to rename this document, changes to the properties of any other document are returning the same error message.
This is extremely frustrating.