Some of this was learned during my Sproutcore effort but, since I am writing this series of posts post-facto, here is the overall understanding.
First, Visual Studio is a Microsoft product and, as such, sucks. I know, I know, many developers consider it to be wonderful. Intellisense, the code completion and context-sensitive documentation function is great. It's tight integration with IIS is very helpful, as is its integration with MS SQL. But it also is cumbersome and bloated. Worse, it doesn't have Eclipse's ability to expand an editor to fill the whole window and then shrink again. That means that one is forever forced to look at code through a little, tiny window. They say that VS 2010 will have multiple-monitor support. Maybe then it won't suck.
I tried doing it with a Virtual Directory. No dice. I don't know why, but it said it needs to be an application. Google google. Turns out that there is an option, right next to the virtual directory on the popup to add an application. Cool Beans. Another step on the road to happiness.
Actually, I have to be honest. I spent a whole bunch of time cursing IIS. I got a message that said it coudn't show the directory. Nothing I did affected the display. Since I assume that IIS is doing invisible, mysterious crap, I thought that it needed something special to see the files in the folder, especially since there is no index.php analog in this project. I learned a great deal about how website.config works and global.asax.cs but no cigar. Then I got the idea to turn on Directory Listing and see if I could click on something.
I was pointing to the wrong directory!!!! Visual Studio in its infinite wisdom has lots of directories named 'sandbox'. I pointed at the one enclosing the good one. Fixed and works.