You need to define the config on the system.webServer element, like:
<system.webServer>
<validation validateIntegratedModeConfiguration="false" />
<modules runAllManagedModulesForAllRequests="true">
<add name="UrlRewriter"
type="Intelligencia.UrlRewriter.RewriterHttpModule, Intelligencia.UrlRewriter" />
</modules>
</system.webServer>
You can keep both config. What you probably have now is:
<httpModules>
<add name="UrlRewriter" type="Intelligencia.UrlRewriter.RewriterHttpModule, Intelligencia.UrlRewriter" />
</httpModules>
Check the section "Migrating ASP.NET Applications to IIS 7.0 Integrated mod" on http://learn.iis.net/page.aspx/243/aspnet-integration-with-iis7/
ps. I have been using it with no trouble at all, as long as that config is in.
Update 1: Also check http://weblogs.asp.net/scottgu/archive/2007/02/26/tip-trick-url-rewriting-with-asp-net.aspx, particularly "Approach 3: Using an HttpModule to Perform Extension-Less URL Rewriting with IIS7", since the config I added has the extension-less config.