And we finally found the last source of our application issues. The subdomain for the web site had an underscore in it. Microsoft IE5 on has security patches that cause IIS to constantly recreate SessionID's. This just breaks custom forms authentication solutions! Other browswers like Firefox, work as you might expect.
So in the end the migration to IIS7 was a number of security and web configuration issues, but 3-4 weeks was spent learning how to navigate the new IDE's, changing, testing and trying to determine why a complex farm/SQL Database application didn't work on IIS7 was because the customers IIS manager wasn't aware of the domain underscore issue. We found the that answer by complete fluke! During this experience, our non technical customers lost a significant amount of faith in our recommendations to use the new Microsoft technology.
We now will not upgrade microsoft technology, until both our staff and the customers staff have had appropriate training on the new technology IDE's, because the costs/time/frustration penalties to do other wise is too much.