Well... I have to admit it's not how the "Install" package is designed to be used but it's all code so it should just work.
That said I just tried an "Auto" installation using your steps and the "Installation" package and it installed correctly but after clicking "Go To Your Portal" the URL changed in the browser from http://localhost:49276/523ViaVS08/ to http://localhost/523ViaVS08.
I also got a "resource cannot be found error message in the browser which was a little suprising. See Step 1 below.....
Manually adding :49276 back into the browser brought up the Default.aspx page and I can log in and use the site. Even added a couple of test pages with modules and users all without any problem.
Things I did differently...
1. If you are already running IIS on the machine STOP it by right clicking on "Default Web Sites" in the IIS Manager and clicking Stop.
2. On your "DNNTest" folder add the Service Account that is running for the Application Pools for IIS. If you haven't touched Application Pools service account then it's "IIS AppPool\DefaultAppPool" and you need to give it "Modify"; Read&Execute; List Folder Contents; Read permissions on the "DNNTEST" folder.
See this post regarding IIS Service Account changes in Win7/IIS 7.5: http://www.dotnetnuke.com/Community/B...
Once I did the above 2 tasks I was up and running....
As far as developing custom modules and pushing to production you have the right idea but you want to use the source package for that purpose.
Download the source package @ http://dotnetnuke.codeplex.com/releas... run in it VS you'll see a huge difference in packages.... Source is uncompiled whereas Installation is a compiled package.
Disclaimer:
I am not a developer and I don't play one on TV but I work with some wickedly good developers!