I have a wcf service hosted in a website in IIS and I seem to have this issue. In my web.config I have this:
Do you have a code file in your site with either Imports System.Linq (VB) or using System.Linq; (c#)?
Seems like the simplest answer is that it is a typo. Maybe the namespace should be corrected to System.Data.Linq.
Edit: System.Linq should be a valid namespace, as it "provides classes and interfaces that support queries that use Language-Integrated Query (LINQ)." (http://msdn.microsoft.com/en-us/library/system.linq.aspx). It is also imported by default in the system-level web.config.
So, not sure what is happening here if it is not related to my suggestion above. Maybe something wrong in your machine.config or system-level web.config?
Edit 2: I find it strange that you adding the System.Core assembly at this level. I believe this is the assembly that includes the System.Linq namespace. Maybe removing it would help?
Edit 3:
System.Linq is imported by default in the machine-level web.config. You can remove the line in your code file.