Make sure your application is not located in a network share or in the Windows users directory (magic). (It could be in the default magic user directory for Visual Studio if you follow my instructions below)
If you are on Win7, create a new MVC 3 application, ^ F5 to run. Then, in the Solution Explorer, right-click the project and select properties. In the left pane, select the Web tab. The default is Cassini (use Visual Studio Development Server). Select the following radio, use the local IIS web server. Now ^ F5, and it will launch your application from IIS. You can also find your application in IIS Manager and in the right pane, select view 80. Now that it works, compare the differences in the two applications.
Your approach should also work. You can try creating a new MVC application and use your approach for testing in IIS. The most common mistake is creating a vDir, not an application
The error message is pretty good. To set ACLS in the application pool identifier, follow the instructions in the Resource Security section at http://learn.iis.net/page.aspx/624/application-pool-identities/
Also see Understanding Built-in User and Group Accounts in IIS 7
If the new MVC application should fail, repeat, but create a Web Forms application.
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