I have my web application or custom code set up as an 'application' as apposed to a virtual directory.
I think this is the root of your troubles. I'm not sure why you would set up a .Net application in IIS to point to your CF app, but I would start by deleting the IIS "application" you have set up, place the top level folder of your CF app directly beneath c:\inetpub\wwwroot in the file system (or wherever your IIS website is pointed to if not the default location), and start from there. Maybe run the CF wsconfig tool again after you've removed the .Net stuff from your IIS config.
After searching for a very long time, I came across an article on how to get some more information on errors.
In IIS 7.5, you can get detail errors for local request - errors that happen on the client side.
I went to my application directory in IIS, and opened up the 'Error Pages' selection.
From there, I selected the 500 error that I needed more information from. I then right clicked on the error (500) and selected 'Edit Feature Settings'.
From the pop-up, selected 'Detailed errors for local requests and customer error pages for remote requests'. I clicked on OK, then stopped and re-started IIS.
When I next tried my application - I received detailed information!
Long story, but the point here is that the error I received while 'test settings'. - 'Details: invalid application path.'
- I think is a false positive. I sent me on a wild goose chase. I had an application error (no kidding) that was easily fixed and was on my way.