Sorry, I realize now that you can't put less than and greater than symbols in your posts... lemme try that again:
I was having the same issue ever since inserting a <location> tag in my web.config file in order to allow a child folder to run a .Net Application.
I tried the solution Quang suggested above, but didn't have any luck.
So I went with option #3 as outlined earlier. But instead of renaming Net40.config, I edited it and changed:
<nodes configfile="Web.config"> to <nodes configfile="Web.two.config">
Then I created a duplicate web.config file in my DNN root directory and named it "Web.two.config". I removed the <location> tag from that new file (not sure if that was necessary) and then all worked flawlessly.
No more growing web.config file, no more inheritance errors in my child .Net app, no event log errors, and finally my site was back to running a full speed. Hope this helps the next person.
Still not sure why this is still a bug in DNN 6.01.04. Shouldn't this be fixed by now?