It has taken me couple of weeks (on a part time basis) to install movable type on my laptop as a stand alone web service in IIS. I kept running into this issue and finally figured it out. Here is what I did.
1. Make sure you have the right settings set up on the mt-config.cgi file. You need to include the GCIPath and StaticWebPath variables. By default you should unzip all of the movable type files in a folder called 'mt' under your webroot.
CGIPath
http://localhost/mt/StaticWebPath
http://localhost/mt/mt-static2. Make sure the YOURCOMPUTER\I_USR_YOURCOMPUTER user has "full control" of your web root. In windows explorer, right click on the webroot folder (C:\Inetpub\wwwroot) > go to the security tab > select internet guest account > check off 'full control'. This user will need to create folders and update files, which is one of the reasons the process hangs.
3. Ensure that all web applications can execute scripts. Open Internet Information Services (control panel > administrative tools). Expand folders until you get to "Default Web Site". Right click on Default Web Site. Go to the Home Directory tab. In the Execute Permissions option select "Scripts and Executable".
4. Also, I read through the movable type configuration and they have suggested settings for MySQL. Create a database (schema) called movabletype. Create a user called mt_user. Using MySQL administrator grant this user all privileges on the new database.
Once you are done, you will find that it was well worth the effort. This is a great tool to create a blog or a general portal.