You get an internal server error because you are not supposed to have httpHandlers inside <system.web> when running in integrated mode in IIS 7.

Try this configuration:

<configuration>
     <connectionStrings>
          [MyConnectionString]
     </connectionStrings>
     <system.web>
          <compilation debug="true" targetFramework="4.0"/>
     </system.web>
<system.webServer>
<validation validateIntegratedModeConfiguration="false" />
<modules>
<remove name="ScriptModule"/>
<add name="ScriptModule" preCondition="managedHandler" type="System.Web.Handlers.ScriptModule, System.Web.Extensions, Version=4.0.0.0, Culture=neutral, PublicKeyToken=31BF3856AD364E35"/>
</modules>
<handlers>
<remove name="WebServiceHandlerFactory-Integrated"/>
<remove name="ScriptHandlerFactory"/>
<remove name="ScriptHandlerFactoryAppServices"/>
<remove name="ScriptResource"/>
<add name="ScriptHandlerFactory" verb="*" path="*.asmx" preCondition="integratedMode" type="System.Web.Script.Services.ScriptHandlerFactory, System.Web.Extensions, Version=4.0.0.0, Culture=neutral, PublicKeyToken=31BF3856AD364E35"/>
<add name="ScriptHandlerFactoryAppServices" verb="*" path="*_AppService.axd" preCondition="integratedMode" type="System.Web.Script.Services.ScriptHandlerFactory, System.Web.Extensions, Version=4.0.0.0, Culture=neutral, PublicKeyToken=31BF3856AD364E35"/>
<add name="ScriptResource" verb="GET,HEAD" path="ScriptResource.axd" preCondition="integratedMode" type="System.Web.Handlers.ScriptResourceHandler, System.Web.Extensions, Version=4.0.0.0, Culture=neutral, PublicKeyToken=31BF3856AD364E35"/>
</handlers>
</system.webServer>
</configuruation>