This post explains how WordPress 2.8 and above will AUTOMATICALLY create the URL rewrite rules for IIS7 – it’s a beautiful thing.
To get URL rewriting working in just a few seconds do the following:
Go to your admin page using http://yourdomainname.com/wp-admin and log in. Then navigate to Settings>Permalinks
I have found the Custom Structure with /%postname%/ to be the most friendly and search engines do seem to like it a lot.
Now when you click on Save Changes – WordPress will automatically create the web.config file for you IF web.config is writeable. If your web.config file is NOT writeable you will see a section in grey just as in the image above.
Simply copy and paste this text in to your web.config file and you’re good to go. Using IIS7 you will find any modification to your .htaccess file are unnecessary.
Go WordPress! Yay!