The other day I was trying to set up my bug tracking software on a server that was running only websites using the new asp.net 2.0 stuff. Well when I went to run the .net 1.1 application, I got a "Service Unavailable" errror in red. What the hell is this I thought. Well after many nights of just saying, well I don't need that app right now on this dev server anyway, I decided to dig into what was going on. I noticed that there was only one app pool running for IIS when I looked at the task manager. Then I thought that the two might be in conflict trying to access simlar resources. So I created a separate app pool for 1.1 and one for 2.0 sites. And magically it worked.
I hope this helps someone that is at their wits end trying to figure this one out. I feel your pain.