When I moved to windows 7 (clean install) I have done a mistake regarding the order in which I have set up the development environment. First, by mistake, I have installed Visual Studio 2008, .NET framework 3.5 and at the end .NET framework 2.0.*. This caused a big issue on IIS 7. Every virtual directory or application created on IIS caused an error on the application pool. I have tried different application pools but got same error: “The worker process failed to preload .Net Runtime version v2.0.40607” and “The worker process failed to initialize correctly and therefore could not be started. The data is the error.”. After some searched over the internet I have found a solution HERE. The fix consists in removing from Windows\Microsoft.Net\Framework of any folder like v2.0.* which is different than v2.0.50727.