I ran into the same thing on one system. At the New Web Site dialog, MM .NET Web Forms or Web Service Template the Location line C:\Documents... was greyed out. That is why I could not save the project! MM Windows Forms were OK.

It was not fixed by uninstalling MM .NET. I compared the VS 2005 Tools | Options | General dialog settings. On the system that was not working a few items were not checked. I checked them to match the working system and voila MM Web Template projects could be saved fine. Anyway I have checked:
Always show Error list...
Track Active...
Show advanced...
Always show solution...
Save new projects when...
Warn user when...
Prompt for symbolic...
The only one that I do NOT have chekced is Show Output window...