I am pleased to let everyone know that WordPress development community has added a built-in support for IIS 7 URL Rewrite Module in the upcoming WordPress 2.8 release. Starting with version 2.8 the Permalink Settings page will allow you to easily configure “Pretty Permalinks” URL structure when WordPress is running on IIS 7 with URL Rewrite Module v1.1 installed.
Here is how the process of updating Permalinks structure will look like in WordPress 2.8 on IIS 7:
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