I'm having similar problems getting DNN5 Community running on my Win7 machine. I've looked at the Add Application in IIS manager but that feature is not available. All I have is Add Web Site. When I try to run the installation wizard I get the following error:
Server Error in '/' Application.
--------------------------------------------------------------------------------
Security Exception
Description: The application attempted to perform an operation not allowed by the security policy. To grant this application the required permission please contact your system administrator or change the application's trust level in the configuration file.
Exception Details: System.Security.SecurityException: Request for the permission of type 'System.Web.AspNetHostingPermission, System, Version=2.0.0.0, Culture=neutral, PublicKeyToken=b77a5c561934e089' failed.
Source Error:
An unhandled exception was generated during the execution of the current web request. Information regarding the origin and location of the exception can be identified using the exception stack trace below.
Stack Trace:
[SecurityException: Request for the permission of type 'System.Web.AspNetHostingPermission, System, Version=2.0.0.0, Culture=neutral, PublicKeyToken=b77a5c561934e089' failed.]
System.RuntimeTypeHandle._GetTypeByName(String name, Boolean throwOnError, Boolean ignoreCase, Boolean reflectionOnly, StackCrawlMark& stackMark, Boolean loadTypeFromPartialName) +0
System.RuntimeTypeHandle.GetTypeByName(String name, Boolean throwOnError, Boolean ignoreCase, Boolean reflectionOnly, StackCrawlMark& stackMark) +62
System.RuntimeType.PrivateGetType(String typeName, Boolean throwOnError, Boolean ignoreCase, Boolean reflectionOnly, StackCrawlMark& stackMark) +42
System.Type.GetType(String typeName, Boolean throwOnError, Boolean ignoreCase) +77
System.Web.Compilation.BuildManager.GetType(String typeName, Boolean throwOnError, Boolean ignoreCase) +105
System.Web.Configuration.ConfigUtil.GetType(String typeName, String propertyName, ConfigurationElement configElement, XmlNode node, Boolean checkAptcaBit, Boolean ignoreCase) +64
--------------------------------------------------------------------------------
Version Information: Microsoft .NET Framework Version:2.0.50727.4927; ASP.NET Version:2.0.50727.4927
Thanks for any help you can provide.