I bumped in to this problem but my solution was something different
I was using a VM and by default the VM created an administrator user but created it without a password.
I had to go out of IIS, in to user settings, add a password to my user and then back to IIS. I then entered the details accordingly and the whole thing worked :-)
I mistakingly thought I was creating a new user here for IIS - I don't believe that is the case you must use an existing user (as in a Windows user).