The Windows Service application I deploy on Windows Server 2003 needs to access network resources as well as the usb tokens I plug in. When I use local system account I can access the usb but not the network files. And with the other user option I cannot access the usb. Is there a way to access both at the same time?
You should have the service run as a domain user account, grant proper permissions on network resources to that account, and make it a local administrator (or just give it proper NTFS permissions) on the server it's running on.
Alternatively, you can have your service running as LocalSystem, but then it will have full control on the server, and to grant it access to network resources you'll need to assign permissions to the server's computer account in the domain.
I strongly suggest the first option.