cd \Inetpub\AdminScripts
adsutil set w3svc/CreateProcessAsUser 0
adsutil set w3svc/CreateCGIWithNewConsole 1

Works perfectly now!

Why microsoft, why? Why do these things to people? You are truly evil!!

Another useful setting to adjust thread limit: adsutil set w3svc/MaxConnections XX ...where XX is the max number of connections you want.

List of commands (format must be altered to match examples above) that helped me solve this problem:

http://nantcontrib.sourceforge.net/release/0.85-rc2/help/tasks/mkiisdir.html

I hope this saves someone a lot of time, took me 2 days to crack this. Thanks to everyone who tried to help me solve it!