Web site hosted under local IIS unable to add to source control

If a web project is hosted under IIS and not visual studio hosting process the project can't be placed under HG source control. The error message given is that the directory is invalid. I believe this is down to the web projects second parameter holding the web reference to the project and not a directory path. The directory path is held with in the 'ProjectSection' section under a value called 'SlnReleativePath'. I include the .sln file so you can see what I am refering to.