I've 3 Wordpress installation on my small webserver, one out of the main folder, 2 in sub sites (iis):

/
/wp_one
/wp_two

These possess a web.config. Basically take away the web.config in the root directory, Web addresses in youngsters wordpress works pretty much. Basically add it again, links point right place however when you click, I`m rerouted towards the correspondent page on root. For instance: www.site.com/wordpress_one/contact redirects to www.site/contact.

web.config content (they have a similar content):

<?xml version="1.0" encoding="UTF-8"?>
  <configuration>
    <system.webServer>
      <rewrite>
        <rules>
          <rule name="wp" stopProcessing="true">
            <match url=".*"/>
              <conditions>
                <add input="{REQUEST_FILENAME}" matchType="IsFile" negate="true"/>
                <add input="{REQUEST_FILENAME}" matchType="IsDirectory" negate="true"/>
              </conditions>
              <action type="Rewrite" url="index.php"/>
            </rule>
        </rules>
      </rewrite>
    </system.webServer>
</configuration>

If you have multiple config files they're merged into just a single one throughout runtime. This stated if you have an internet.config inside your root the kid ones are incorporated inside and also, since your pathways aren't relative they become invalid.

To be able to fix this you'll have to build your pathways relative in line with the best web.config.