AlwaysCreate must be set to true if IsApplication is true
The IsApplication property for a Web Application folder or Web Custom folder specifies whether an Internet Information Services application root will be created for the folder. If this property is set to true, the AlwaysCreate property must also be set to true in order for the application root to be created.
To correct this error
In the File System Editor, select the Web Application folder or Web Custom folder.
In the Properties window, set the AlwaysCreate property to true.