I had the same problem and figured out what the issue is. When logging in (using the command line ftp program provided by windows), you have to use login like this: hostname:username.
This was for my ftp publishing which was setup for my website on windows 7. So, for example, if your websites host name is www.example.com and your username to access the ftp site is administrator (you can see the host-name by right clicking the website in IIS7, go to edit bindings), the username to type in the ftp login prompt will be www.example.com|administrator
Then you shouldnt see that error 530 any more. Afterwards type your password, and your in. This worked for me atleast. Good luck!