I've replied a lot to these questions lately.  I'm not going to go to very deep with this, Scott Hanselman has excellent post covering this, see that: How to set an IIS Application or AppPool to use ASP.NET 3.5 rather than 2.0 http://www.hanselman.com/blog/HowToSetAnIISApplicationOrAppPoolToUseASPNET35RatherThan20.aspx Simple way ...

Mike Volodarsky has put up a nice article about VS2008 and IIS 7.0 together. Check it out: http://learn.iis.net/page.aspx/387/using-visual-studio-2008-with-iis-70/