This is driving me crazy. Fortunately this time I located error more easily.
Looking at error logs gave me direction about. Error message was:
It is not possible to run two different versions of ASP.NET in the same IIS process. Please use the IIS Administration Tool to reconfigure your server to run the application in a separate process.
so everything was fine when I created new Application pool for sites using .NET 1.1 and another for .NET 2.0 sites and problem was fixed