Hi Greg,
You certainly can store your application in the website's root folder.
If you are using Visual Studio.Net to do your development, it prefers you to setup a virtual directory :-) However, you can use the "New Project in Existing Folder" option to create a project that's based in the root folder of a website.
Cheers
Ken
Microsoft MVP - Window Server (IIS)
MCITP (EA, SA), MCTS (ISA, SQL Server, Hyper-V, MOSS, Ops Manager), MCSE+Security, MCDBA