Many user who using IIS7 as the web services and found out the SEF(Search Engine Friendly aka Permalink or URL rewrite) is not working in Joomla.
With Joomla implementation, it is using the rewrite rules to perform the Search Engine Friendly to be worked. Hence you either need the URL rewrite configuration installed or APE(Apache emulator) to done it.
Although the easiest way is using Ape(Apache emulator) to done it by installing Ape to your IIS7, however some module might not really working well from Ape to IIS7 and Mick Genie will not teach how to install Ape to your IIS7, however you may install it through URL as below.
Download here: http://www.iis.net/community/default.aspx?tabid=34&g=6&i=1938
Today, Mick Genie will teach you how to use Microsoft URL Rewrite tool where free to download from Microsoft IIS site.
1. Firstly download the Microsoft URL Rewrite tool.
2. Edit or create a web.config file from the Joomla application folder.
3. Add the following line to your web.config file.
Download here: joomla.txt
4. Log into the administrator of your Joomla.
5. Click on the global configuration and configure the SEO configuration.
6. Set the SEF(Search Engine Friendly URL) to YES.
7. Well done, try to browse your site again and everything is working well.