IIS 7.5 Invalid authentication headers 401.2 when viewing site in browser

Question

I have a Visual Studio 2010 project that is using Forms Authentiation. It runs fine from within Cassini (visual studio systray IIS, aka pressing F5). I'm using MVC2.

1. I created a website in IIS 7.5 (on my Windows 7 machine)
2. then pointed the physical directory at my Visual Studio project file
3. Enabled only Forms Authentication in IIS

Keep receiving this error:

HTTP Error 401.2 - Unauthorized You are not authorized to view this page due to invalid authentication headers.

PS: I didn't use the Create Virtual Directory option in Visual studio, since I need host headers for what i'm doing, so a dedicated IIS website.