Before everyone reads this, I just want to say that i know that there are related threads out there, but I have either tried them or do not understand. With that being said here
On this msdn blog: Troubleshooting HTTP 500.19 Errors in IIS 7 in sceanrio 8 for error code 0x80070005 (E_ACCESSDENIED - General access denied error) it says:
Grant Read permission to the IIS_IUSRS group ...
.... the worker process identity (and/or the IIS_IUSRS group) needs at least Read access to the directory so that it can check for a web.config file in that directory.