I have a app which is under source control (TFS 2012 also) on c:\\Dev\\MyApp\\Main.
Because im developing a new feature I decided to open a branch on c:\\Dev\\MyApp\
I ran into the same issue. To fix it, I used cheesemacfly's suggestion, to update C:\Users\%USERNAME%\Documents\IISExpress\config\applicationhost.config
to point to the new directory.
The obvious downside with this solution is that you need to do this repeatedly if you plan on switching between your new branches often. Seems like a bug in VS2012...