How do I get IIS 7 to allow posting of XML files

Sounds like he wants to use SOAP? Correct or i'm wrong? So in case you need to have related Interface implemented into your webapp.

But please confirm if i got your question correctly.

The vendor is posting a XML file to our web server. My understanding is that IIS 7 will accept the file and post it in a web folder. They have their own user name and password. They are not using FTP at all.

http is allowing sending files as a so called "POST" request which is similar to what is done by web forms.
I guess you just need to make a small page and they can send related request to it attaching the XML file.

EDIT:
Please find attached link where you can find how you can implement what you are searching based on IIS7

http://blogs.msdn.com/b/henrikn/archive/2012/03/01/file-upload-and-asp-net-web-api.aspx

Please let me know if it is helpful for you

So they have their own login to automatically send us a file. There is no posting manual to our website. what can be done to do it that way?

Think this is going to work. But now I get an error

404 - File or directory not found.
The resource you are looking for might have been removed, had its name changed, or is temporarily unavailable.
What am I missing?

It didn't work on their end. Got a 404 error. Maybe doing a web page to capture and setting IIS to accept it. Do you know how to do that?

This will not work for the current company but it does work well if needed and allowed. Thanks!