I just ran into the same problem and man did it annoy me. I was not going to stop until I found an answer and I beleive I have. I wrote the below "remedy" and it has worked on 4 of 5 coworkers machines that experienced the problem. (I am not messing around with the reboots - clear out that memory!) It is a bit verbose for a posting and I hope I don't get dinged but here it goes:
Visual Interdev + FrontPage Server Extension 2002 Problems
Problem -- Can't create a new solution and/or project through project wizard
Potential Error: Method Not Allowed(Error Code = "80070005"

References: Microsoft KB 272289
1. Close all programs and Remove FP2002 Server Extensions through "Add Remove Software"
2. Reboot
3. Uninstall IIS -- Start|Settings|Control Panel|Add Remove Programs|Add Remove Windows Components <-- (left column menu selection)
a. Uncheck IIS box
b. Uncheck Indexing Service box (if checked)
c. Uncheck Script Debugger box (if checked)
4. Reboot
5 Go into Add Remove Programs|Add Remove Windows Components and reselect above unchecked items
a. Check IIS box
b. Check Indexing Service box (if prev. checked)
c. Check Script Debugger box (if prev. checked)
6 Wait for install to complete.
7. Reboot
8. Go into Internet Services Manager - Right click "Default Web Site"(or your particular website) and go to "All Tasks"
9. In all tasks, should see "Configure Server Extensions" (this means the website does NOT have the server extensions enabled) -- select "Configure Server Extensions"
(Will start a wizard to assist in configuring the extensions, permission wizard will start also, follow and take the defaults)
10. Once step 9 is completed, right click again on the site, "All Tasks" and you should see "Check Server Extensions" -- select "Check Server Extensions"
(Will start a diagnostic window and tell you what it did to configure. May see a message like "/_vti_bin/ was not marked executable. Problem solved."

(automatic)
11. Once step 10 is completed, follow the below points:
a. Open an instance of Internet Explorer and add the below URL and hit enter:
http://
yourservername/_vti_bin/shtml.dll
Should receive the message: "Cannot run the FrontPage Server Extensions' Smart HTML interpreter on this non-HTML page:"
This is good -- it tested that an instance of the FPSE were installed on the machine
If not check to see if "Configure Server Extensions" is still available under "All Tasks" or go to MS Site + download FPSE 2000
(FPSE 2000 are also on Office 2000 + FrontPage 2000 disks if you have them laying around if you can't find it on MS website)
b. Open an instance of Internet Explorer and add the below URL and hit enter:
http://
yourservername/_vti_inf.html
Right-Click on page (will have heading "FrontPage Configuration Information"

and select "View Source"
Look for an HTML Comment "<!-- FrontPage Configuration Information --> and "FPVersion=xxxxxx"
This will give you the version of FPSE that are currently on your machine. (Microsoft recommends you have version 4.0.2.2717 or later)
12. Once step 11 is completed, right click again on the site, "All Tasks" and select "Recalculate Web" -- diagnostic to run through and recalculate the web (automatic)
13. Once step 12 is completed, Reboot once again and open Visual Interdev.
14. Go through and try to set up a new VI project/solution.
You should be able to use your machine name as the server and be able to create a new project.
Notes:
My system is a Win2000 Pro + Visual Studio 6 SP5. This is my development machine and I was only using the Default Website in IIS. I upgraded my FPSE 2000 to 2002 when I ran into the above problem of not being able to create a new
project in Visual Interdev. Once completing the steps, I was able to create a new VI project and I did
NOT try to reinstall FPSE 2002 again. Do a web search on the problem and you will see that this has happened to a number of people and with no remedy from Microsoft or insight into the potential problem.
Be smart -- back up your web files before removing IIS.
Please refer to Microsoft Knowledge Base Article - 272289
This article contained excellent information regarding VI and IIS error codes which helped me develop the above "remedy".
Pay attention to message # 5, parts a,b,c; #6 and #12 in the article.