VerySimple Dev Blog

Certain PHP applications return the error “directory name is invalid” when installed on a windows server. This seems to be an issue with IIS and certain PHP versions.
A workaround is to open the IIS Admin panel, go to the MIME configuration for .php files and make sure that “Check that file exists” is enabled. [...]

I just spent about an hour trying to figure this out, but when you have a php application that requires call time pass reference to be enabled, you can set in the .htaccess file.
the trick is that you have to set it to “1″ and not “on” as is indicated on the PHP support forums. [...]