I am migrating some ASP.Net applications from IIS6 to IIS7 and all has gone well until now. I am trying to create several virtual directories on 1 server that will point to files on another server. In IIS6, all I had to do was make anonymous authentication use a user that had access to the files. In IIS7, I can't get it to work. I setup the virtual directory with the username and password but I get a 500.19 error "Cannot read configuration file due to insufficient permissions". I can't imagine that I really have to put a web.config in a directory that just contains images and no application files. If I click on the directory in IIS Manager, I get that error about the web.config file on anything that I click on such as the Authentication section. Also, writing to files from the virtual directory seems to work just fine so I don't think there is anyway that I have an access problem. I have given the directory access to the IIS_IUSR group.
When using a virtual directory that's pointed to a UNC share, go to advanced settings for the virtual directory, then choose a specific user account that has the appropriate rights to access the folder. It works for my virtual directory in my asp.net app that is pointed to a UNC share on a remote server.