I've an problem where we attempted to upgrade our TFS 2005 server to 2008. Throughout the install we experienced the mistake that could not configure SQL Confirming Services. The log files demonstrated that throughout the creation/configuration from the virtual sites for SQL Confirming Services (the Reviews directory to become exact) a FileNotFoundException was tossed. Your directory was really produced. SQL Confirming services were running all right prior to the install. I attempted to use and reconfigure by hand using the report server configuration tool but although it can create both sites, still it fails having a FileNotFoundException. I by hand configure the .config files to suggest to the present server and I can obtain the sql report services site running. We attempted a number of things: playing with permissions, application pools, re-installing the .Internet framework, aspnet_regiis, etc. but nothing has transformed the mistake.
I lately experienced an identical problem. After setting up a brand new RS instance and using SQL Server sp2 and also the KB954606 hotfix, Cleaning it once a to configure the RS instance, but creating the virtual directory unsuccessful. As with your situation, the virtual directory was produced, however the RS configuration tool put a mistake.
During my situation, removing the recently-produced virtual directory using IIS manager after which restarting the server fixed everything. I could effectively produce the virtual sites using RS Configuration Tool following a reboot.