I encountered this error on a Windows 7 Ultimate OS, and this is what I did in IIS 7.5:
I ensured that the WebDAV module was uninstalled. Some of the http verbs (specifically PUT and DELETE) can be in conflict with the WebDAV module. You have to remove that from the "Programs & Features" area of the control panel.
I also added the DELETE verb to the "Request Filtering" area of my website within the IIS Manager and set it to Allow.
Finally, within the "Handler Mappings" area of the site in the IIS Manager I added a new mapping with the title DELETEVerbHandler, and used the following settings:
Request Path: *
You probably will need to do the same thing for PUT and OPTIONS http verbs.
Hopefully, that will help, but this thread might have more details that can help you.