When you are configuring a clean install of Commerce Server 2007, you'll definitely need to go through the hellish and longish configuration steps that this document specifies. But once in a blue moon you might get this Application Pool Invalid Identity error when you are trying to browse the Web Services of Commerce Server (Order, Catalog, Marketing and Profiles). The error will be very cryptic with something on the lines: "The identity specified for the Application Pools is invalid... the application pool has been disabled..." Unfortunately, I cleared out my eventlog before capturing the exact text and description. But here is the solution:

There is a small note tucked in the document which says: (Bad English of course)
Note 
If the account you created must be able to start Common Gateway Interface (CGI) processes, assign the user rights Adjust memory quotas for a process and Replace a process level token to this account.
For more information about how to configure user rights for CGI applications, see "Configuring CGI Applications" in IIS Help.

In effect, you need to perform the below steps:

1. Open up Local Security Policy (Start > Control Panel > Administrative Tools > Local Security Policy)
2. Traverse to Local Policies > User Rights Assignment
3. Right Click on Adjust Memory Quotas for a process and select properties
4. Click Add User or Group
5. Add the user names of the identities under which the App Pools are running - CatalogWebSvc, MarketingWebSvc, OrdersWebSvc & ProfilesWebSvc
6. Add the RunTimeUser account as well
7. Right Click on Replace a process level token and Select properties
8. Repeat steps 4 to 6.
9. Restart IIS

Now, your web services should be up and running!