I can see that my previous posts were not as clear as I thought.
Yes, having .NET 1.1 and .NET 2.0 on a machine is not a problem, my development environment at work is that way. The NOT being able to install DNN 4.0.3 at all was because of .NET 2.0. As I said in my previous post I installed Visual Studio 2005 and then got all the patches. VS 2005 will install it's own version of .NET 2.0, which apparently has some differences from the .NET 2.0 the MS will download when you check for updates/patches.
However, if you get all updates/patches first, then install VS 2005, .NET 2.0 is not installed by VS 2005. Since VS 2005 thinks/knows .NET 2.0 is already on the computer.
On the web.config, even if the connectionStrings settings and the appSettings have errors, you will still get messages that tell you there is a problem, not a 'page not found'. Which is the error message I got on my first install of the OS on this computer.
Putting DNN under the 'Default web site' does not require any html page in order to work. You only need to put default.aspx as a document type in the Document tab under Properties of the virtual directory in IIS manager.
All the web sites I have developed at work have been created on my development computer this way. When we move to a test or production box then the web site gets a 'real web address'. Since at that point an entry is needed in DNS for any one to be able to see it.
One other reason I did it this way is because of the Installation Guide in the 4.xx section page 34 it quite clearly shows creating a virtual directory under the default web site, NOT as a seperate website.
As I said in my previous post, I have solved the install problem.
Thanks for your help/input.