The problem is that the Application Data 'folder' is not a folder, it is called a Junction.
Some of the system folder names were changed in Windows 7 and to assure compatibility with older programs that are hard coded to look for these former names, Windows 7 uses Junctions with the older name to redirect these older programs to the
The C:\Users\Den\AppData\Local\Application Data junction redirects to: C:\Users\Den\AppData\Local.
These Junctions have the permissions set to Everyone = Access Denied. They cannot be used as a folder to store any files.
This problem occurs when a user changes these permissions in an effort to access that junction. Changing the permissions allows any action to 'recursively walk through' the junction and this creates a recursion (Also called an infinite loop)
the result of which is what you are describing.
Your best recovery option is to use System Restore to go back to a point before the permissions were changed. If this is not possible, see the following threads to see how other members fixed the problem.