Discovered today that something that was very familiar in WSS 2.0 (the necessity to exclude managed paths for directories that you don’t want ‘managed’ by SharePoint, was done in Central Admin in WSS 2.0), is even easier in WSS 3.0. 

In WSS 2.0, to exclude a managed path:

Reference: http://technet.microsoft.com/en-us/library/cc287929.aspx

In WSS 3.0 (and MOSS 2007), to exclude a managed path:

Create your virtual directory in IIS. That’s it. WSS will just ignore it. Nice.

Remember though to:

• Define any non-standard default documents in IIS
• Perform an IISRESET, otherwise SharePoint isn’t yet *aware* of the new mapping
• If you have extended the site in various forms (alternate access mappings, etc.) EACH URL will need the virtual paths created

I have read that some people (different strokes, different folks) have had to give the Network Service account read permissions on the physical directory. But that hasn’t been my experience.

Note: You still create Explicit Inclusions and Wildcard Inclusions on the administration page for the site.