Here is the resolution:
1) Change Action to "Modify": This applies for all folders that come as default with IIS.
2) Comment out Blank Keys: Right after the folders, there are a couple of empty keys. These are default for all IIS versions. Leaving this uncommented confuses BL while deploying the package. Make sure it is commented out.
3) Comment out User and Pass: Comment out Anynomous User and Anynomous Pass keys. This get's populated automatically after IIS is installed and should be left alone on the target server.
4) Copy webserver data: Copy the files from the associated metadata. Usually, all the data is stored in C:\inetpub\wwwroot, but make sure this is true before deploying it.
After doing the above, I was able to replicate IIS using Metabase Deploy method.