I migrated my hosting over to an IIS7 provider and I ran into a couple problems that I thought I should blog about.  Of course I was not the first person that moved to IIS7 and experienced simular issues.  Fortunately that someone blogged about their issues as well and that's what I used to resolve my problems.  So take a look at the CodePlex BlogEngine Discussions for the orignal poster.  I was having the exact same symptoms where my CSS did not work and all links came up with a 404 error.  Once I applied the configuration changes that where mentioned in the discussion I was up and running.