Create a local VM using virtual PC. Do not give that virtual machine a network connection.
Edit: Note it is possible to have an unnetworked virtual machine be accessible over a network safely in two ways:
Share the virtual machine's settings and hard drive over a network share. Only one person can use the virtual machine at a time. I suspect using undo disks in a clever way could remove this limitation, but it's not supported.
Use a server-based virtual machine solution like VMWare. If your company isn't already doing this, it costs money and resources to set up. The advantage of this is that everyone can look at the machine at once.
Note that in both of these solutions, users are accessing the VM directly, not connecting to it. So, the machine itself is not actually hitting the network and thus there is no way to hack into the vm without gaining access to the machine hosting the VM first (e.g. through a share like in #1). This is more like remote desktop than external website, but remote desktop leaves the machine you're remoting into the ability to see computers directly, so it is not as safe as this is.
Tautology: It is not possible for a machine to serve up content to other machines unless those machines are accessible (directly or indirectly) to it. So if you have the VM running IIS and want to treat it as an external web server but not have it be able to access computers on your network, you're running into a conflicting requirements. Any trick involving sending the traffic in some roundabout way is just turning security holes into more roundabout security holes (though not roundabout from the perspective of hackers).
Technically both #1 and #2 also make the VM accessible over the network, but the virtual machine itself doesn't see the network (instead, the machine hosting the VM sees the network).