Just an update as I hit this issue and all of the settings in both Visual Studio and IIS seemed to be correct.
What actually worked for me was simply running Visual Studio as an administrator - I'm guessing that there is a permission that needs to be set somewhere, but I have no idea what or where.
Also a point to note is that I configured all my websites to use the DefaultAppPool in IIS which at the time was ASP.NET V2, then installed .NET 4 and the DefaultAppPool was converted to .NET4 so none of the sites would compile (that caused me a small amount of swearing)
Hope that helps someone