Creation of the virtual directory http://localhost/ failed

On attempting to check out a project in VS2008, I got the following message:

The local IIS URL http://localhost/ specified for Web project DemoWebsite has not been configured. In order to open this project the virtual directory needs to be configured. Would you like to create the virtual directory now?

On clicking yes, I got the following error:

Creation of the virtual directory http://localhost/ failed with the error: The URL 'http://localhost/' is already mapped to a different folder location.

The rest of the solution checked out all right, but the above project did not; it was marked as unavailable. I right-clicked the project node in the solution explorer and selected the option to edit the project (.csproj) file. Near the bottom of the file, I found the following:

<iisurl>http://localhost/</iisurl>

I edited this entry to add a virtual directory:

<iisurl>http://localhost/myapp</iisurl>

Having saved the change, I then right-clicked the project node in the solution explorer again and reloaded the project. When I was prompted to create the virtual directory again, the creation was successful and the project checked out. The virtual directory is created under the running web site in IIS (on Windows XP).