I followed this thread with interest, because I am in a similar position.First I discovered that one cannot place a web server and InetPub in a common path to the drive root -- not if you need to have FrontPage Extensions work correctly.
Then I found out that the same applies to multiple web servers.
Because I started with two FP-generated webs they apparently carry with them the evidence of this history.
I am trying to set the two webs up as
D:\web1\myweb1 and D:\web2\myweb2 -- and this worked OK for web1\myweb1, which looks fine in MMC.
When I use MMC to set up myweb2 there is a message about detecting a web-based server, and an invitation to delete/rename the file
D:\web2\myweb2\_vti_pvt\services.cnf.
I tried to do this a couple of ways, (including first deleting web2 out of MMC -- but retaining it on the disk) and I get a message "Error Deleting File: Cannot delete services: Access is denied. Make sure that the disk is not full or write-protected and that the file is not currently in use."
I am logged in as the Administrator, and the file permissions for _vti_pvt\services.cnf are: 'Special Access (RWXDPO)'. Are there other permissions that supervene?
What do I have to do to run myweb2 in parallel with myweb1? Is it necessary to physically remove myweb2 and its folders from the drive D:\, delete the web-related folders/files, then return the remaining files to the drive?

Thanks in advance for any pointers on this...
Jim H