OK, so it works under Local System, which means it can't be pointing at the wrong location. I'm still guessing that whatever service account you are using doesn't have the correct permissions on the location. Now this is strange given that you are indeed using SQL Server Configuration Manager to change service accounts. Maybe something else is overriding the permissions. Please check what permissions the service account has on the folder that SQLAGENT.OUT is in, and that there are no overriding DENYs that could be preventing access.

John