It sounds like you're looking for applicationHost.config, which is located in C:\Windows\System32\inetsrv\config.
Yes, it's an XML file, and yes, editing the file by hand will affect the IIS config after a restart. You can think of IIS Manager as a GUI front-end for editing applicationHost.config and web.config.
The answer is simple, if not that obvious: win2008 is 64bit, notepad++
is 32bit. When you navigate to Windows\System32\inetsrv\config using
explorer you are using a 64bit program to find the file. When you open
the file using using notepad++ you are trying to open it using a 32bit
program. The confusion occurs because, rather than telling you that
this is what you are doing, windows allows you to open the file but
when you save it the file's path is transparently mapped to
Windows\SysWOW64\inetsrv\Config.
So in practice what happens is you open applicationhost.config using
notepad++, make a change, save the file; but rather than overwriting
the original you are saving a 32bit copy of it in
Windows\SysWOW64\inetsrv\Config, therefore you are not making changes
to the version that is actually used by IIS. If you navigate to the
Windows\SysWOW64\inetsrv\Config you will find the file you just saved.
How to get around this? Simple - use a 64bit text editor, such as the
normal notepad that ships with windows.