To enable secured folders for a Virtual Directory in WebSitePanel, follow these simple steps:
1) Recreate Website (kept files), such that settings would go to default
2) Turn on Secured Folders (this turns off integrated windows and turns off basic authentication automatically. It only leaves Anonymous authentication -- as it should be for Secured Folders.)
3) Make Virtual Directory
4) Switch Virtual Dir app pool to 4.0 Integrated (Integrated is required for secured folders)
5) Enable Directory Browsing on Virtual Directory (This is such that we dont receive a 403 forbidden error while testing. Without directory browsing, 403 forbidden error is shown when no default file is found after successful login -- which can be confusing but means everything went properly.)
6) Make a new Secured Folders group, user, and folder.