Thanks Bill,
I am going to downgrade this site to .net 3.5
For my future reference (and for others):
To upgrade to ASP.NET 4.0, upgrade DNN framework, upgrade modules, install modules.
Do the following:
1. Backup the web.config
2. In web.config Remove the location tag above <system.webServer>
3. In web.config Remove the location closing tag below </system.web>
4. Upgrade to DNN framework that has this issue resolved (backup the httpdocs folder and DNN database before upgrading):
http://www.dotnetnuke.com/Resources/Forums/tabid/795/forumid/108/threadid/407924/scope/posts/Default.aspx
Thread title: Re: Inheritance disaster! DNN 5.6.1 in root, .net 2 app in subfolder
(should be GREATER THAN DNN 5.6.1)
5. Install any modules you want to upgrade / install;
then BACKUP the DNN httpdocs folder and database AGAIN into the private directory
6. Upgrade the ASP.NET version to 4.0 at host
7. Check the event log to make sure the site has auto-upgraded to .net 4
8. In web.config replace the location tags:
<location path="." inheritInChildApplications="false">
goes right above <system.webServer>
_____________
</location>
tag goes below </system.web>