Instead of setting up DNN in a virtual directory as you've done make the DNN directory the root of the website in IIS. 

This is fairly simple to do assuming you don't have other items at the root of your site that you want to remain at this time.

You are, but you can also have the same effect with websites as you can with virtual directories.

If you point individual websites to the DNN files (the same folder for each) DNN will handle the URLS and load which portal is being requested.

Before you make the change though, be sure to login as a superuser and manage the Portal Aliases. you'll need an alias for each portal with the domain name without the /dotnetnuke on the end.