If you are wondering why VS.NET doesn't let you debug, or why the web services wizard isn't working for you it is because the default you are on Windows Server 2003 and you installed Windows Sharepoint Services (WSS) and the default install of WSS “takes over“ the root directory. It is recommended that (at least on a developer machine) you exclude the root from WSS and everything will magically continue working. Thanks to Eric for this reminder.
To exclude root do this: Go ahead and exclude the <root> of the IIS default web site as a managed path using the SharePoint Central Administration site by following these steps:
1. Open SharePoint Central Administration site using link in Control Panel -> Administrative Tools
2. From the homepage of Central Administration under Virtual Server Configuration click the Configure virtual server settings link
3. Click on the Default Web Site link
4. Under Virtual Server Management click on the Define managed paths link
5. It is highly recommended to not include the (root) path as a managed path. To do this under Included Paths check the box next to (root) and click the Remove selected paths link.