Here's what I did to get Permalinks working for WordPress v2.5.1 and 2.6
STEP 1:
Create a page called wp-404-handler.php with the following code:
<?php
$qs = $_SERVER['QUERY_STRING'];
$_SERVER['REQUEST_URI'] = substr($qs, strpos($qs, ':80')+3);
$_SERVER['PATH_INFO'] = $_SERVER['REQUEST_URI'];
include('index.php');
?>
Place wp-404-handler.php in the root of your blog folder
STEP 2:
Login to Control Panel > IIS > Custom Errors
Edit 404 to URL with: blogfoldername/wp-404-handler.php
STEP 3:
Login to blog. Change Settings > Permalinks
Set Custom Structure to /%year%/%monthnum%/%postname%/
STEP 4:
Save settings and test blog.
Worked for me...so far.
