FTP 7.5, IIS User authentication and Isolation logon problems

I am trying to get user isolation working on Windows 2008, FTP 7.5. The logon box keeps coming up (internal and external) and none of the user accounts work. If I remove user isolation and allow anonymous access it works.

There are only 2 servers in the company. The FTP server is a secondary domain controller and its only purpose is to be used as an FTP server (and to have a backup of active directory). The FTP users will NOT be domain users (they will be customers of the company). User isolation needs to be in place so when a customer logs in, it goes right to there "username" directory ONLY. The users should not have permissions to any other customer’s directory. They should not even see the other directories.

In addition the users should be able to upload and read files but NOT be able to delete any files.

I understand how user isolation and IIS Users work. I have been over the config many times. I used Microsoft articles on how to set it up step by step. The config looks fine except none of the user names work when trying to log in. They only work when user isolation is shut off and anonymous access is enabled. I have tried it by logging in directly on the FTP server through IE and also on a computer external to the network and get the same results. It just keeps popping up with a user name and password prompt and none of them work.