IIS7 Settings File Locations

It sounds like you're looking for applicationHost.config, which is located in C:\Windows\System32\inetsrv\config.

Yes, it's an XML file, and yes, editing the file by hand will affect the IIS config after a restart. You can think of IIS Manager as a GUI front-end for editing applicationHost.config and web.config.

Also check this answer from here: Cannot manually edit applicationhost.config

The answer is simple, if not that obvious: win2008 is 64bit, notepad++ is 32bit. When you navigate to Windows\System32\inetsrv\config using explorer you are using a 64bit program to find the file. When you open the file using using notepad++ you are trying to open it using a 32bit program. The confusion occurs because, rather than telling you that this is what you are doing, windows allows you to open the file but when you save it the file's path is transparently mapped to Windows\SysWOW64\inetsrv\Config.

So in practice what happens is you open applicationhost.config using notepad++, make a change, save the file; but rather than overwriting the original you are saving a 32bit copy of it in Windows\SysWOW64\inetsrv\Config, therefore you are not making changes to the version that is actually used by IIS. If you navigate to the Windows\SysWOW64\inetsrv\Config you will find the file you just saved.

How to get around this? Simple - use a 64bit text editor, such as the normal notepad that ships with windows.