Sample code for the IIS:Web element seems to be hard to come by, but after some trial and error, I think I found a solution:
Create the folder as normal in the Directory hierarchy:
<Directory Id='blahDir' Name='blah'>
<Component Id ='CreateBlah' Guid='B1976E1A-DEB1-4FBB-A5AB-4AA60930D2DC'>
<CreateFolder />
</Component>
</Directory>
Create an IIS:WebDirProperties element (in this case, some random values for testing):
<IIS:WebDirProperties Id="ReadAndExecute" Read="yes" Write="yes" Script="yes" Execute="yes" AnonymousAccess="yes" Index="no" LogVisits="no" />
Create an IIS:WebDir component pointing to the folder and the WebDirProperties element:
<Component Id='TestWebDir' Guid='8ED05357-1AAE-49F2-8C66-8813583C8157'>
<IIS:WebDir WebSite='DefaultWebSite' Id='MyWebDir' Path='Test/blah' DirProperties='ReadAndExecute' />
</Component>
The entire sample, adapted from the WiX tutorial, can be found below:
<?xml version='1.0' encoding='windows-1252'?>
<Wix xmlns="http://schemas.microsoft.com/wix/2006/wi" xmlns:IIS="http://schemas.microsoft.com/wix/IIsExtension">
<Product Name='Foobar 1.0' Id='48A3DF7A-E1C3-48BE-91D9-4D7368740A78' UpgradeCode='F8ABBBC9-0696-4FA9-A0DC-C9368E858A76'
Language='1033' Codepage='1252' Version='1.0.0' Manufacturer='Acme Ltd.'>
<Package Id='*' Keywords='Installer'
Description="Acme's Foobar 1.0 Installer"
Comments='Foobar is a registered trademark of Acme Ltd.' Manufacturer='Acme Ltd.'
InstallerVersion='100' Languages='1033' Compressed='yes' SummaryCodepage='1252' />
<Icon Id="AddRemoveProgram.ico" SourceFile="AddRemoveProgram.ico" />
<Property Id="ARPPRODUCTICON" Value="AddRemoveProgram.ico" />
<Media Id='1' Cabinet='Sample.cab' EmbedCab='yes' DiskPrompt="CD-ROM #1" />
<Property Id='DiskPrompt' Value="Acme's Foobar 1.0 Installation [1]" />
<Directory Id='TARGETDIR' Name='SourceDir'>
<Directory Id='ProgramFilesFolder' Name='PFiles'>
<Directory Id='InstallDir' Name='Acme'>
<Directory Id='blahDir' Name='blah'>
<Component Id ='CreateBlah' Guid='B1976E1A-DEB1-4FBB-A5AB-4AA60930D2DC'>
<CreateFolder />
</Component>
</Directory>
<Component Id='default.htmlComponent' Guid='E2FC2FC2-96A2-4BE5-BBCB-7184D9AAACA0'>
<File Id='default.htmFile' Name='default.htm' KeyPath='yes' DiskId='1' Source='default.htm' />
</Component>
</Directory>
</Directory>
<Component Id='TestWebVirtualDirComponent' Guid='B4E73F80-875C-487A-BC57-A568732F03A3'>
<IIS:WebVirtualDir Id='TestWebVirtualDir' Alias='Test' Directory='InstallDir' WebSite='DefaultWebSite'>
<IIS:WebApplication Id='TestWebApplication' Name='Test' />
</IIS:WebVirtualDir>
</Component>
<Component Id='TestWebDir' Guid='8ED05357-1AAE-49F2-8C66-8813583C8157'>
<IIS:WebDir WebSite='DefaultWebSite' Id='MyWebDir' Path='Test/blah' DirProperties='ReadAndExecute' />
</Component>
</Directory>
<IIS:WebSite Id='DefaultWebSite' Description='Default Web Site'>
<IIS:WebAddress Id='AllUnassigned' Port='80' />
</IIS:WebSite>
<Feature Id='TestFeature' Title='TestFeature' Level='1'>
<ComponentRef Id='CreateBlah'/>
<ComponentRef Id='default.htmlComponent' />
<ComponentRef Id='TestWebDir'/>
<ComponentRef Id='TestWebVirtualDirComponent' />
</Feature>
<IIS:WebDirProperties Id="ReadAndExecute" Read="yes" Write="yes" Script="yes" Execute="yes" AnonymousAccess="yes" Index="no" LogVisits="no" />
</Product>
</Wix>