0. Create 2 level folder structure on disk with html file in subfolder.
1. Created web application on Vista localhost
2. Set application authentication to windows only
3. Set authentication to subfolder to anonymous only.
4. Open web application in visual studio (running as local administrator)
5. The subfolder shows up in solution explorer with green dot, but it pointed to root of web application, not to subfolder as it should.
6. However if subfolder was converted to virtual directory - everything works as expected.