This is most likely because your website is setup as an application in IIS. So although your physical file system is set at
c:\inetpub\wwwroot\kentico10 your website is setup as an application in that website. So something like
Take a look in IIS and if you have anything like what is in the red box below, then you have sub applications setup in IIS.
If this is the case, delete the application in IIS and go to the root of the website and right click and go to Manage Website>Advanced Settings. In there, change the path of the website to the physical path on your machine. It has to be inside the \CMS directory. So if your Kentico install is located in
C:\inetpub\wwwroot\Kentico10 you need to have the path set to