Reset IIS 7 back to its original state

try this
secedit /configure /cfg %windir%\repair\secsetup.inf /db secsetup.sdb /verbose

If this is a domain controller, their is a separate DC .inf file you need to
apply as well to get the default DC permissions.

http://support.microsoft.com/kb/883380

This problem is not related to outlook or owa and is not on a 2003 server. The platform is a windows vista ultimate (SP1) laptop and IIS 7. I need to be able to restore the default web site files and configuration. When I try and create it myself, I get the authentication errors shown in the attachment.

Why dont you try removing Web Server (IIS Role)  and then reinstalling it ... ?

I have already removed the feature, removed the inetpub directory tree, and added back in the feature. I currently have iis 7 back clean except that the default web site was not created. When I try and create a default site at the root level "c:\inetpub\wwwroot", I get the follow permissions error:

The server is configured to use pass-through authentication with a built-in account to access the specified physical path. However, IIS Manager cannot verify whether the built-in account has access. Make sure that the application pool identity has Read access to the physical path. If this server is joined to a domain, and the application pool identity is NetworkService or LocalSystem, verify that \$ has Read access to the physical path. Then test these settings again.

I can't figure out exactly what the heck to do here. The directory permissions look correct.