I'm trying to copy files between 2 servers on a local network from within a
SQL Job (and Query Analyzer) using xp_cmdshell.xcopy but get an access
denied message returned.

I'm able to successfully do the copy from within a command window so think
the problem has something to do with using the default SQL Server account
but as yet I don't know how to resolve.

Any help/suggestions would be much appreciated.

Am guessng that you are running MS-SQL using the local SYSTEM account.
System does not have access to network devices.

Your two options are to create another account and configure MS-SQL and
agent to use that account. You may beable to get away with just
configuring agent for that but depends on how you are doing the
command.

Or to go into policy editor and allowing the system account to have
netowrk priviledges. This is a major security hole and should not be
done.