In the Request Filtering
section I needed to set .axd files as an Allowed extension, my hosting company had the setting Allow unlisted file name extensions
turned off, which was different to my development environment.
I could be miles off here because I'm as far from an IIS expert as it's possible to be, but I came across your question since I too am having trouble with IIS7 in integrated mode. One thing I notice is that you're using the httpHandlers section, which sits in system.web. However, I think for integrated mode you need to use the system.webServer section:
<system.webServer>
<handlers>
<add... >
</handlers>
</system.webServer>
Hopefully someone who knows what they're talking about will correct me if I'm wrong.
I recently moved a client website from an old IIS6 to IIS7 installation. They were running into 404s on their application when calling .axd also. Their site was set to .net 2, permissions correct, handlers all looked good. Ended up changing their application pool from "Managed Pipeline Mode" Integrated to Classic, this solved the problem for their application.
After trying a lot of the options, they didn't work out. But however, this worked. In your Appstart folder add this code routes.IgnoreRoute("{resource}.axd/{*pathInfo}") in routeconfig.cs as shown below.
public static void RegisterRoutes(RouteCollection routes) {
routes.IgnoreRoute("{resource}.axd/{*pathInfo}");
}