Update: Expression Web version 3 fixes the issue detailed in this Knowledge Base article.

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Microsoft Expression Web does not recognize the pipe in the IIS 7 FTP username as a valid character, so it is not currently possible to use Expression Web on an IIS 7 account.

If you are unfamiliar with the pipe character, it is what separates the numerals from the letters in your IIS 7 FTP username.
For example: 0099999|yourdomain0.

This is a known bug, and Microsoft has assured us that it will be addressed in the next major Expression Web release. We do not, however, know when that release will be made public.