I am happy for Adam, but it didn't work for me.
I need to create two virtual folders, and to work around the "ASPNET version bug" I had to split the vdir creation, so I have FOUR create vdir instructions (two for IIS6 and two for IIS7). This is how I did it.

- vdir creation
- creatvdir.png (36.52 KiB) Viewed 1320 times
I thought I copied/pasted the instructions, as Adam said, so I deleted them and re-created them by hand, but I still have the problem.
This is the end result

- end result
- endresult.png (31.36 KiB) Viewed 1320 times
As you can see, the default website path has been changed to the targetdir.
This is really annoying: we chose IA because it could handle IIS7 and application pool creation, but turns out it does it in a very unreliable way (a few years after IIS7 has been released!).
Any chance you have a new workaround? I am running out of ideas...