Hi Jan,
Furthur more testing, I figured out that the command line paramter of WACS contain the below configuration
"-Dbobj.trustedauth.home=C:/Program
Files (x86)/SAP BusinessObjects/SAP BusinessObjects Enterprise XI
4.0/java/pjs/container/bin"
The above paramter should contain the location of the TrustedPrincipal.conf file, as it is stated to a different directory, it is looking for the configuration file in that directory and not able to find it.
Update it to the current directory and it starts working.
Thanks,
Prithvi