This error normally occurs whenever the password for application pool identity account is changed or application pools are in stopped state. In my case, I realized that password got changed for the Identity account. Here are the steps to resolve:

If you are Running SharePoint in Windows 2003:

Go to Start -> All Programs -> Administrative Tools -> Internet Information Services (IIS) Manager.Locate your App Pool account and right-click on it and select ‘Advanced Settings’.Go to process model then Identity Click on the Identity ->Set and then give the user name, password and confirm password.

Hope this will work fine after that.
Here is the Microsoft KEDB: