I just wanted to update my own post to post the resolution. In regards to my last post where by removing the ExtensionlessUrlHandler-Integrated-4.0 handler, after further testing, this seems to break Kentico's URL mapping feature so I had to abandon this solution.
I contacted support and even though I didn't get a clear answer back, further testing by simply installing Kentico 9 and observing the default document handling and simply upgrading the version 10 and observing how it has changed, the best guess as to what's going on here is that the logic behind Kentico to handle a URL through the CMS or redirect the request to the file system has changed. Prior to V10, if the path /foobar was not mapped in Kentico and /foobar was NOT in the excluded URL list, a request to http://domain.com/foobar loaded the default IIS document if the physical path existed on the webserver. After V10, the default IIS document no longer loads on such a request, instead a 404 is thrown through the ExtensionlessUrlHandler-Integrated-4.0 handler even though the physical path exists and a default document exists in that path. Also to note that if a request to the default document is made directly such as http://domain.com/foobar/default.aspx, the physical document IS loaded even though the /foobar path is not in the exclusion list in Kentico.
The issue comes when you already have an existing asp.net website that you deploy Kentico onto. Prior to Kentico v10, this was completely transparent to the client as all previous links that lead to default physical documents worked as expected (http://domain.com/foobar or http://domain.com/foobar/default.aspx) as long as those paths were not mapped in the CMS. After upgrading to V10, the former URLs no longer work unless they are explicitly added to the URL exclusion list. This breaks your website if you have URLs anywhere that reference a directory where by you expect IIS to load the default document. Upon looking at the changelog, I could not find any bug fixes or changes that directly reference this change.
The workaround or hack I came up with involves intercepting the request in the Global.asax.cs file in the Application_BeginRequest() method, querying the Kentico tables (CMS_Document and CMS_DocumentAlias) to see if the path is mapped or not, if not, then a check is made to the physical file system to see if a default document exists at the requested path and if so, a Response.Redirect() is made to the default document directly. Caching and other performance related measures are also taken to ensure minimal performance hit. If anyone would like the code to this, I'd be happy to share.