MSMQ folder on Default Web Site

I found my answer.. KB 949348

If you've created the website using the usual IIS7.5 out-of-the-box defaults then your "test website" will have had an application pool created for it as well.

The default identity that the site will execute requests as is ApplicationPoolIdentity. ApplicationPoolIdentity is a special synthesised account that is created on the fly and represents the identity of your site's application pool.

You state:

physical path has "IIS AppPool\DefaultAppPool" read and execute

This would explain why you're getting the 500.19 error. Unless you assigned the site to the "DefaultAppPool" application pool this permission won't be doing anything useful.

You need to assign the ApplicationPoolIdentity of the site (at least) read and execute permissions. To do this execute the following from the command line:

icacls <path_to_site> /grant "IIS APPPOOL\<app_pool_name>"(CI)(OI)(M)

Where <app_pool_name> is the name of the application pool that was created for your test site. You can find its name by executing:

appcmd list app /site.name:"<your site name>"

This will return something like and displays the name of your site's application pool (which ApplicationPoolIdentity is named after:

APP "test site/" (applicationPool:test site)