I encountered this error while running an old project, based from ASP.NET 1.1 Commerce Starter Kit and dashCommerce, previously called ASP.NET 2.0 Paypal eCommerce Starter Kit. It was recommended in dashCommerce installation to create a separate application pool solely for the dashCommerce project’s virtual directory. All was running smoothly until I installed it more than a couple times and missed this step along the way and thus it gave me “Server Application Unavailable” error.

This error might also mean something else, I’m only referring to the following.

The Problem:
Running at least two applications in different ASP.NET Frameworks (1.1 and 2.0/3.0) side by side could mean that somewhere you are trying to run 1.1 applications and 2.0/3.0 applications within the same process.

The Solution:
Create different application pools in IIS for each ASP.NET Framework, one for 1.1 applications and the other for 2.0 applications.

Solution Source: ASP.Net Forums