Update 04/05/2010: IIS will do authentication,and after that the request is yielded to the SharePoint14Module, which will contact file system first and then content database for appropriate page. See this blog for details.
There is an exception: if you put files (other than folders) under iis root directory of sharpoint site, those files can not be served unless they are defined as Explicit Inclusion type of managed path. This seems to be the wss 2.0 "excluded" concept.
Update: this exception only applies to MOSS and WSS 3.0, it is fixed in SharePoint 2010. great fix, no more confusing.
Update: this exception only applies to MOSS and WSS 3.0, it is fixed in SharePoint 2010. great fix, no more confusing.