I got permalinks working in IIS 5 by putting a PHP.ini file in my root directory, with the following in it:
cgi.fix_pathinfo = 1
cgi.force_redirect = 0
That's working great for permalinks, BUT it disables my ability to create thumbnails. If php.ini is in my root, I can't create thumbnails in WordPress RTF and if I use iimage browser, it says "Filetype not supported. Thumbnail not created." However, I can create thumbnails if I delete the php.ini file.
Any ideas on how I can fix this (besides getting a new host)?