This morning I used WebMatrix to install a new Orchard instance to test theme installation.
The site loads as expected, so I navigated to the Admin/Themes section and selected "Install a theme from your computer" then tried to install a theme from BindTuning.
I get an error that says:
Package uploading and installation failed: There was an error installing the requested package. This can happen if the server does not have write access to the '~/Modules' or '~/Themes' folder of the web site. If the site is running in shared hosted environment,
adding write access to these folders sometimes needs to be done manually through the Hoster control panel. Once Themes and Modules have been installed, it is recommended to remove write access to these folders.
This is hosted locally on IIS Express.
Also, I was able to install the "Terra" theme from BindTuning as a test and it worked fine.
Any idea what account IIS Express might be using so that I can verify that the folders have permissions set properly?