Did you install IIS after installing Visual Studio .NET? (I'd love to know
how you got IIS installed in XP Home, but that's another story)
If so, you need to establish mapping between VS and IIS.
Follow the procedures in Knowledge Base Article #306005,
which says in part (you should read the whole thing):
                "After you install the Microsoft .NET Framework Software
                 Development Kit (SDK) or Visual Studio .NET, Microsoft
                 Internet Information Service (IIS) mappings are created to
                 associate the new file extensions and settings for
ASP.NET. If
                 you did not have IIS installed when you ran the SDK or
Visual
                 Studio Setup, or if you uninstalled and reinstalled IIS
after
                 you ran the SDK or Visual Studio Setup, those settings
will
                 not be in place. You experience unexpected behavior when
you
                 try to view ASP.NET pages.

                 When you try to create a new ASP.NET Web application in
Visual
                 Studio .NET 2003, you receive the following error message:

                 Visual Studio .NET has detected that the specified Web
server
                 is not running ASP.NET version 1.1. You will be unable to
run
                 ASP.NET Web applications or services.
                 MORE INFORMATION
                 To fix IIS mappings for ASP.NET, follow these steps:
                   Run the Aspnet_regiis.exe utility:
                     Click Start, and then click Run.
                     In the Open text box, type cmd, and then press ENTER.
                     At the command prompt, type the following, and then
press
                     ENTER:

"%windir%\Microsoft.NET\Framework\version\aspnet_regiis.exe"
                     -i
                     In this path, version represents the version number of
the
                     .NET Framework that you installed on your server. You
must
                     replace this placeholder with the actual version
number
                     when you type the command.
                   Register the Aspnet_isapi.dll:
                     Click Start, and then click Run.
                     In the Open text box, type the following, and then
press
                     ENTER:
                     regsvr32

%windir%\Microsoft.NET\Framework\version\aspnet_isapi.dll
                     Regsvr32 returns the results of the registration. "