Had to switch to "Application user" (pass-through authentication) to see the site again (site advanced settings).
If I set "Specific user" (the one the site folder belongs to), iis7 shows the error. I've changed the user password as I've lost the old one.
It seems that the OLD password is stored (encrypted) in some configuration file (Unavailable (Config Isolation)).
IIS7 "detailed error report" shows few line of this configuration:
application path="/">
virtualDirectory path="/" physicalPath="XXXXXX.com" userName="XXXXXX" password="[enc:AesProvider:XXXXXXXXXXXXXxxXXXX:enc]" />
/application>
in IIS manager Go to Advanced settings->virtual path credentials ->connect as ->specific user -> set write your new user and new password in set credential window thin click OK.