Since I started my work on Codename “Umbrella” (which is SharePoint for the Windows Home Server) like nine moths ago, I struggled with SharePoint running in a (custom) Minimal trust level which breaks all the existing applications running in virtual (sub) directories.

Even today I was not able to find a good solution, but finally came up with a actually working one:

To prevent the Windows Home Server web applications from inheriting the restrictions (because they are virtual directories inside the SharePoint web application) the /configuration/system.web element has to be enclosed by a location element to restrict its influence:

<location path="." inheritInChildApplications="false">
    ........
</location>

This solution has been proven to fix the issues. However it comes with a certain degree of incompatibility which has not been fully tested yet and requires further investigation. The following things are known to fail:

• Deploy/Retraction of solutions

If someone comes by a better solution or wants to discuss this, please feel free to contact me.

Related article on Codename “Umbrella”: http://codenameumbrella.codeplex.com/wikipage?title=WebConfigIsolation&referringTitle=FAQ