Steve,
First of all DotNetNuke like to be on your drive like c:/ and using c:\inetpub\wwwroot\dotnetnuke may be causing file location problems.
Follow the instructions in the Readme.txt file and they will clarfiy some of what's below.
Second, permissions for the local path section in IIS only need read to work and set Execute Permissions: below to scripts only.
Third, you may want to go into IIS and remove the DotNetNuke (if it is there) and your dotnetnukevirtual you created and create the new DotNetNuke one once again.
This will make it easier to follow everyones steps or directions down the road.
Fourth, a stock standard web config connection string should look like this: (taken from 1.0.10)
<add key="connectionString" value="Server=localhost;Database=DotNetNuke;uid=sa;pwd=;" />
Try replacing this with the one you have. You don't need the trusted stuff.
The errors relating to the mobile devices are for the Mobile Internet Toolkit which must be installed. You still may get an error message even though you have this installed but if you ignore this and say okay (if I remember right) and continue on it will install through this.
Fifth, you may want to change the line <customErrors mode="RemoteOnly" /> to say
<customErrors mode="OFF" /> instead to show error messages while debugging. (OFF is case sensitive)
Give it another go and good luck...
Tom
http://www.dnnfaq.com
http://www.websplus.net
http://www.sdarchery.com