Localsettings.php not Found by non-admin users
I found the root cause of the problem - when I switched over to using Windows Authentication the security group that gated user access did not have the same permissions as the IIS_IUSRS group that controls anonymous access. I had to mirror the access levels of IIS_USRS to my domain security group both in my MediaWiki site folder and the PHP folder. Once done the settings file is found and the site loads as expected.
I'm seeing the same thing with an installation of mine. We're using the Auth_Remoteuser extension and when we ported to a Windows 2008 R2 system our admin accounts could see the wiki just fine, but end-users were getting the "LocalSettings.php file not found" screen.
Your fix that you mentioned is very general in how you stated it, so I want to confirm, in more specific language, what you did to fix this:
You set ACL settings to match both in the Mediawiki site root AND for your PHP installation folder (Most often found in the 32-bit program file folder c:\Program Files (x86)\PHP) to the same permissions settings (specifically for the IIS_IUSRS group to match for both web root and PHP folder). Correct?