I'm not sure of your setup, so I would do this...
#1 - Wipe your DNN install. Create a new sql DB/uid and extra your DNN files to your clean dir
#2 - Assign Network Service full permissions (easy for initial testing, tidy this up later) to your DNN directory
#3 - rename release.config to web.config and enter in your DNN db/uid/pass
#4 - Configure your IIS, do not use a virtual directory, simply point to your DNN home dir. Give script/asp access. Also, edit the IIS application pool and set the application pool timeout to a high number.
#5 - Go to whatever URL you want in your web browser.. but make sure this refers to your IIS DNN website.
(If needed (I don't run v4) go to your $windows_directory\microsoft.net\v2.x framework directory and do the aspnet_regiis -c command.)
Your initial load will be ~1-5 minutes, but that should only happen once.
That is basically what needs to happen to get DNN rolling.