two wordpress installations, pretty permalinks works for one but not the other

I’m running WP 3.5.2 from a directory on an IIS 7.5 server and everything is running smoothly, pretty permalinks and all. I want to install a second instance of WP in another directory but when I attempt to do so on my test server, the second install gives me 403 errors on all pages but the home page when I enable permalinks. Adding index.php to the permalink works but I’d like to avoid doing that if possible.

My coworker and I have run through the permission settings and they appear to be the same for both installation folders. Is it possible that the 403 error is being caused by a conflict with the redirect rules in the web.config file from my first installation that’s in the root?