A number of programmers I work with have ISAPI_Rewrite 3 set-up on their local machines with IIS7 and it works extremely well. I've just created a new website and ISAPI_Rewrite 3 works there as well with no issues. But a colleague of mine did the same thing (added a third website to IIS7) and the new website doesn't seem to want to use the .htaccess file.
I've checked to make sure that all the virtual folders are set-up correctly and the IUSER and System users have the proper access rights.
I am wondering if there is something that I might have missed?