This plugin will allow 100% pretty permalinks on IIS 6/7.
That depends on which version of IIS you are using.
In IIS 6 without Integrated Pipeline mode, the request comes in, is matched by the engine which then makes a web request to the correct php page. In IIS 7 proper path rewriting is done and the PHP handler is invoked by IIS.
Get in touch and I'll see what I can do to fix it. This is an early release and has worked in the situations I've tested, I can't guarantee it will in all circumstances.