I am getting the error:
Module IIS Web Core
Notification Unknown
Handler Not yet determined
Error Code 0x80070005
Config Error Cannot read configuration
First, make sure IUSR has Read permission on the config file (which I believe you have done that)
Then, change IIS authentication method to BasicAuthentication
If still not working, probably the .config extension is not properly installed in IIS.
Try all 3! Good luck!
EDIT: Forget to ask you, what kind of appliation is it?