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IIS7 Invalid Application Path

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Last Modified: 2013-12-14
Trying to get a web service working under IIS7 on a new Windows 7 development machine.
 No matter what I do, if I select pass through authentication and then test connection, i get
 "Invalid application path" error.  If I connect as my user name and password then the test is ok,
but either way cannot connect from IE.  I get a "The specified module could not be found" error
in IE, but when I look in procmon it seems that the real problem is that it cannot find web.config.

W3WP tries to open:
  C:\inetpub\wwwroot\PayrollEntryService_x\PayrollEntryService_x.asmx\web.config

See what is happening? It thinks that web.config is inside a folder named the same as my asmx
file for the web service!!!  I cannot find a way to fix this.

I am installing the web app by creating a web setup project in VS2008, and then using the Install
feature from within VS2008.

What is worse is that this behaviour was not the problem when I started troubleshooting.
At that time this configuration error did not exist - instead W3WP was unable to find
MFC90D.DLL (yes this is the debug version for testing). I was using a converted setup
 program that was originally created in VS2005.  But when I deleted that project and created
 a new setup project in VS2008, that is when this new behaviour started.

HELP PLEASE!!!
Russ
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