Directly editing IIS 7 applicationHost.config configuration file
Solution 1:
Also check this answer from here: Cannot manually edit applicationhost.config
The answer is simple, if not that obvious: win2008 is 64bit, notepad++ is 32bit. When you navigate to Windows\System32\inetsrv\config using explorer you are using a 64bit program to find the file. When you open the file using using notepad++ you are trying to open it using a 32bit program. The confusion occurs because, rather than telling you that this is what you are doing, windows allows you to open the file but when you save it the file's path is transparently mapped to Windows\SysWOW64\inetsrv\Config.
So in practice what happens is you open applicationhost.config using notepad++, make a change, save the file; but rather than overwriting the original you are saving a 32bit copy of it in Windows\SysWOW64\inetsrv\Config, therefore you are not making changes to the version that is actually used by IIS. If you navigate to the Windows\SysWOW64\inetsrv\Config you will find the file you just saved.
How to get around this? Simple - use a 64bit text editor, such as the normal notepad that ships with windows.
Solution 2:
Specifically, is it safe to carefully edit this file instead of using IIS Manager or the appcmd command line utility?
Yes! You can edit the applicationhost.config file directly if you're an Administrator on the machine; that's all that the Admin tools do, too.
If you get into trouble, at least 20 minutes of configuration backups are stored in \inetpub\history by default.
Solution 3:
You will find a nice introduction to the applicationHost.config file right over at IIS.NET. There's also a thorough Reference for all elements in the IIS config schema.
It's pretty well-documented actually :-)