IIS cannot serve images due to impersonation?

I had the exact same weird error and the most frustrating thing in the world is a reboot worked. These are all the steps i used, maybe they help some one even though they do not supply root cause.

We set "Impersonate client after authentication" permissions via GPO in.

Computer config >> Windows settings>> Security Settings >> Local Policies >> User Rights Assignment.

I added the user we have for our site with this issue to that group, it is the user for the website and app pool.

updated GPO ensured new settings showed user permissions on the local server, but still no luck.

Then we rebooted the server and it all worked. So i dunno if these changes require more then a GPO update to resolve the issue.