While there probably is a way, and I might even be interested in hearing about it, you would usually be better off using a browser for your live view. Not only does it make sure that your 'Live' view is showing you what a browser will actually show you (because I don't know how many times I've run into issues that didn't show up in DreamWeaver, but managed to show up on every browser I tested), but it gets you accustomed to working the way you might work with tools other than DreamWeaver, should you ever have to (or decide to) work with something else.
Honestly, though, you may be closer to getting this to work than most people ever do. It really just looks like you're having an issue with the permissions on the files, possibly because the account used by whatever server is being used to render the 'Live' view doesn't have read access to the file.
