WebDav installation package only works for IIS 7.0 not IIS 7.5 (which 2008 R2 has). So to fix this, in the IIS Role under Server Manager, Go to Add Role Services and add WebDav Publishing listed under "Common HTTP Features." Then follow the steps above to configure the WebDav in IIS.
http://technet.microsoft.com/en-us/library/cc431377.aspx
thx