There were a number of problems with the Transition to IIS 7. Considerable debugging was required.

FIRST ISSUE RESOLVED:
Directory permissions for the IIS 7 application pool identity (the default was Network Service)
needed to be added so that the IIS application pool could have access to the physical path of the Website directory.

SECOND ISSUSE RESOLVED:
A line needed to be added to the ASP.Net application web.config file.
Child of <configuration>
After <system.web>

Added:
<system.webServer>
<validation validateIntegratedModeConfiguration=”false” />
</system.webServer>

THIRD ISSUE RESOLVED
The Default App pool upon install has .Net Framework 2.0 as default. This was fine.
The Default App pool setting for Managed Pipeline Mode needed to be changed from ‘Integrated’ (default) to ‘Classic’, this was the quick fix to keep my app running as it had on IIS 6.