mrdash,
In my experience, this is a pretty common configuration.....
Quickly -- here are the high level steps that i take to install a new site
create directory with all website files (unzip the dnn package inside)
within IIS create the virtual directory, make sure asp.net 2.0 is selected....add the host header ....etc...
in the file system, add appropriate permissions for the Network Service account to the directory that contains the application (make sure the changes propagate all the way down through the file structure)
set up database through management studio, add user, etc....
modify web config with the appropriate connection string..
and then you should be able to enter the appropriate URL in your browser, if DNS is set up it will hit your IIS and if that is set up it will hit your application, and if the file system permissions are set up and the database connection string works...away you go...it will present you with the installation wizard
hope that helps,
Ian