I'm trying to understand what you're doing and I've done this numerous times without any issues...
I'll explain from my side using W2K3 and a website as an example...

First - I make sure my network adapter has an IP address (internal) that I'm going to use for the DNN site (lets call this 10.1.1.10)
I then unzip the contents of the dnn website folder (from source project) into a folder on my d drive - lets call it d:\websites\samplewebsite
I then setup a website (NOT A Virtual directory) in IIS and point it to D:\websites\samplewebsite (note that I unzipped the contents of the website folder into samplewebsite - not creating a subfolder called website under samplewebsite)...
I also make sure the website points to 10.1.1.10 as it's IP address.

In the database if I edit the portalaliases, I usually change the entry which has localhost on it (or you could simply add a new row) and make it 10.1.1.10.

Open up a browser and go to 10.1.1.10 and voila the site works...


Now things to note:
If you make changes to PortalAlias (from the db side), you might have to bounce the website so that the setting are reloaded from the database - these get loaded on APP_START.

You do NOT have to unzip the contents of DNN onto the default root directory of IIS...

I think there's something you're missing along these steps - please let me know if something is unclear...

Sanjay