To enable Permalinks on a WordPress site hosted under IIS7:
1. If the web.config exists, edit it and add the following to the <system.webServer> tag:
<rewrite>
<rules>
<rule name="Main Rule" stopProcessing="true">
<match url=".*" />
<conditions logicalGrouping="MatchAll">
<add input="{REQUEST_FILENAME}" matchType="IsFile" negate="true" />
<add input="{REQUEST_FILENAME}" matchType="IsDirectory" negate="true" />
</conditions>
<action type="Rewrite" url="index.php" />
</rule>
</rules>
</rewrite>
2. If the web.config does not exist, create a new file and put in the following:
<configuration>
<system.webServer>
<rewrite>
<rules>
<rule name="Main Rule" stopProcessing="true">
<match url=".*" />
<conditions logicalGrouping="MatchAll">
<add input="{REQUEST_FILENAME}" matchType="IsFile" negate="true" />
<add input="{REQUEST_FILENAME}" matchType="IsDirectory" negate="true" />
</conditions>
<action type="Rewrite" url="index.php" />
</rule>
</rules>
</rewrite>
</system.webServer>
</configuration>