A couple of points:
- if you go into IIS 7 Manager, try to make changes like changing the default documents, and it gives you an “Access Denied” message, it means your web.config is read-only. For some reason, every time you try to make changes, it apparently tries to open the web.config file (even if it doesn't do anything to it), and if it is read-only, it fails. Even if you are running as administrator.
- to debug, you have to run VS 2005 as administrator, you need to enable Windows Authentication, and you sometimes (not clear when exactly) need to run under the Classic .NET Application pool. The latter is due to the fact that the debugger apparently tries to attach to IIS before it is properly authenticated, which is slated to be fixed in the next Service Pack for VS 2005.