Click the Locations button and make sure that you select your computer. Enter IIS AppPool\<myappoolname> (eg: IIS AppPool\PK Protect) in the Enter the object names to select: text box. Click the Check Names button and click OK. Check Modify under the Allow column, and click OK, and OK.
The "IIS APPPOOL\AppPoolName" will work, but as mentioned previously, it does not appear to be a valid AD name so when you search for it in the "Select User or Group" dialog box, it won't show up (actually, it will find it, but it will think its an actual system account, and it will try to treat it as such...which won't work, and will give you the error message about it not being found).
How I've gotten it to work is:
As long as the AppPool name actually exists, the login should now be created.
CREATE LOGIN [IIS APPPOOL\MyAppPool] FROM WINDOWS;
CREATE USER MyAppPoolUser FOR LOGIN [IIS APPPOOL\MyAppPool];
You can solve like this,
If you do this way, you don't need to create a user in database.
If you're going across machines, you either need to be using NETWORK SERVICE, LOCAL SYSTEM, a domain account, or a SQL 2008 R2 (if you have it) Managed Service Account (which is my preference if you had such an infrastructure). You can not use an account which is not visible to the Active Directory domain.
As a side note processes that uses virtual accounts (NT Service\MyService and IIS AppPool\MyAppPool) are still running under the "NETWORK SERVICE" account as this post suggests http://www.adopenstatic.com/cs/blogs/ken/archive/2008/01/29/15759.aspx. The only difference is that these processes are members of the "NT Service\MyService" or "IIS AppPool\MyAppPool" groups (as these are actually groups and not users). This is also the reason why the processes authenticate at the network as the machine the same way NETWORK SERVICE account does.
The way to secure access is not to depend upon this accounts not having NETWORK SERVICE privileges but to grant more permissions specifically to "NT Service\MyService" or "IIS AppPool\MyAppPool" and to remove permissions for "Users" if necessary.
If anyone has more accurate or contradictional information please post.
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