401 Error after Sharing wwwroot folder on HomeGroup in IIS7, Windows 7

In order to reset the wwwroot permissions I went to another box and copied all the settings to the web server having issues.

Here's the steps to return to the default permissions for the wwwroot folder:

1. right-click on the wwwroot folder and click Properties
2. go to the Security tab and click the Advanced button
3. click the "Change Permissions..." button and make check the "Include inheritable permissions from this object's parent" checkbox
4. remove all permission entries where the "Inherited From" column has a value of "<not inherited>"
5. click Apply and verify that the following 5 permission entries are being inherited from the "C:\inetpub\" directory:
   • TrustedInstaller - Full control
   • SYSTEM - Full control
   • Administrators - Full control
   • Users - Read & execute
   • CREATOR OWNER - Special

Once those permissions are verified, click the Add button and enter "IIS_IUSRS" for the object name and click OK. Select "Traverse folder / execute file", "List folder / read data", "Read attributes", "Read extended attributes", and "Read permissions" from the permissions list and click OK.

The wwwroot folder should now be set back to the out of the box permissions that come with IIS7.

This fixed the mentioned 401 Access Denied error I was encountering.

I ran into this same issue. Rather than re-create all permissions though, just had to re-add WEBSERVER\Users with read permissions - it seems that sharing the folder maybe removed that one?