The BizTalk. System application is read-only so it can't be updated, but I doubt that you would be trying to update it without knowing it, especially with such a simple sounding project. Your new application should be referencing BizTalk.
System though... maybe there is a problem creating this dependency? These are some of the initial steps I would take to troubleshoot: Check the BizTalkMgmtDb database to make sure you have the appropriate permissions Check the EventViewer logs for more details about the Access Denied error Try creating an empty application manually in the BizTalk Admin Console, see if you get the same error If you can create the application manually, try deploying the project via VS 2008 to the empty application and see if you get the same error Hopefully one of these will help pinpoint what the problem is (or even better, hopefully you've alreadty resolved the issue :) ).
I agree that you shouldn't be deploying to the BizTalk. System application. To check that you are deploying to the correct place, open your BizTalk project properties and click on the 'Deployment' tab (I'm making the assumption above that you are deploying locally, in which case the BizTalk Group Server and Configuration Database should already be set).
Under BizTalk Group, set Application Name to 'Test Application' (this can be changed later to something more meaningful); ensure all of the other boolean properties on the Deployment tab are set to true, with the exception of the Enable Unit Testing property. When you now deploy the project from Visual Studio (by right clicking the project name and selecting 'Deploy', the new BizTalk Application will be created and the project deployed as a resource to that Application. Watch the VS Output window to check that they deployment is successful.
Once the deployment has completed, open the BizTalk Server Administration Console and expand the Applications node, you should now see a new application called 'Test Application'. If you expand the new app and take a look in Resources, you will see your recently deployed project.
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