Yes, it is possible to run VWG on IIS7 in the DefaultAppPool.
If you set your VWG app to the DefaultAppPool and you are running it on your local machine, i.e. via localhost, then beware that there might be mixed results from different browsers. FF3 gave me the 404 error, while IE7 did differently. By using the ip address, instead of localhost, you should be ok.
When you first deploy your app and set it to the DefaultAppPool on IIS7 and try accessing it via browser, you get a really descriptive error page that actually says it all! What needs to be done is migrate your httphandlers section and you are even told what you need to do to do it!
First make sure you have backup of your web.config file. Then open a command window and change to the directory of your application (where your web.config file resides) and give this command:
%SystemRoot%\system32\inetsrv\appcmd migrate config "Default Web Site/"
What this does is adding a new section to your web.config file that looks something like this:
<add name="*.wgx_*" path="*.wgx" verb="*" type="Gizmox.WebGUI.Server.Router,
And this section comes below and outside of your <system.web> section.
After this, there's only left to rock and roll :-)
P.S. Note that if copying web.config (overwriting) is a part of your deployment procedure, then you would have to do this every time you deploy, or you could do this once, and then copy the new web.config over your dev app web.config and then it should deploy with your application.
Hope this helps,