Which code would you like. Is there an ftp server where I can upload my zip
file? The virtual directory was setup when the ASP.NET webservice was
creating using the Visual Studio wizard.
calling program is a windows form  app (I have put some relevant snippets
below) created using visual studio wizard.
I did mess around with machine.config initially but I uninstalled and
reinstalled IIS and did not touch it after that. I can put that also for you
in the zip file if I can somehow attach files. What section of the config
would you like to see and I can post it here
FORMS APP
private void cmdBegin_Click(object sender, System.EventArgs e)
        {
            try
            {

                localhost.Service1 x = new localhost.Service1();
//                x.Timeout = 90000;
//                x.Timeout = -1;
                x.HelloWorld();
                System.Diagnostics.Debug.WriteLine(x.HelloWorld());
            }
            catch(Exception exct)
            {
                System.Diagnostics.Debug.WriteLine(exct.Message.ToString());
//                System.Diagnostics.Debug.WriteLine(exct.Source.ToString());
                System.Diagnostics.Debug.WriteLine("INNER EXCEPTION" +
exct.InnerException.StackTrace.ToString());
                System.Diagnostics.Debug.WriteLine(exct.StackTrace.ToString());
            }
        }

HELLO WORLD WEBSERVICE

[WebMethod]
        public string HelloWorld()
        {
            return "Hello World";
        }

GENERATED Reference.cs when adding the Web Reference using Visual Studio IDE
public Service1() {
           this.Url = "http://localhost/WebService2/Service1.asmx";
       }
EXCEPTION STACK TRACE
'WindowsApplication1.exe': Loaded 'va_qba8p', No symbols loaded.
The underlying connection was closed: An unexpected error occurred on a
receive.
An unhandled exception of type 'System.NullReferenceException' occurred in
WindowsApplication1.exe

Additional information: Object reference not set to an instance of an object.

Unhandled Exception: System.NullReferenceException: Object reference not set
to an instance of an object.
  at WindowsApplication1.Form1.cmdBegin_Click(Object sender, EventArgs e)
in d:\windowsapplication1\form1.cs:line 104
  at System.Windows.Forms.Control.OnClick(EventArgs e)
  at System.Windows.Forms.Button.OnClick(EventArgs e)
  at System.Windows.Forms.Button.OnMouseUp(MouseEventArgs mevent)
  at System.Windows.Forms.Control.WmMouseUp(Message& m, MouseButtons
button, Int32 clicks)
  at System.Windows.Forms.Control.WndProc(Message& m)
  at System.Windows.Forms.ButtonBase.WndProc(Message& m)
  at System.Windows.Forms.Button.WndProc(Message& m)
  at System.Windows.Forms.ControlNativeWindow.OnMessage(Message& m)
  at System.Windows.Forms.ControlNativeWindow.WndProc(Message& m)
  at System.Windows.Forms.NativeWindow.DebuggableCallback(IntPtr hWnd,
Int32 msg, IntPtr wparam, IntPtr lparam)
  at System.Windows.Forms.UnsafeNativeMethods.DispatchMessageW(MSG& msg)
  at
System.Windows.Forms.ComponentManager.System.Windows.Forms.UnsafeNativeMethods+IMsoComponentManager.FPushMessageLoop(Int32
dwComponentID, Int32 reason, Int32 pvLoopData)
  at System.Windows.Forms.ThreadContext.RunMessageLoopInner(Int32 reason,
ApplicationContext context)
  at System.Windows.Forms.ThreadContext.RunMessageLoop(Int32 reason,
ApplicationContext context)
  at System.Windows.Forms.Application.Run(Form mainForm)
  at WindowsApplication1.Form1.Main() in
d:\windowsapplication1\form1.cs:line 84The program '[2752]
WindowsApplication1.exe' has exited with code 0 (0x0).