*SOLUTION FOUND*

Are you on a Windows 2008 Server with IIS7 and just cant figure out why Drupal keeps giving the: 'sites/default is not protected from modifications and poses a security risk' error?

Its not your fault, in fact its Drupals for not labeling it correctly. The true issue is that not enough permissions are issued to begin with to the sites/default folder. This can cause issues if importing a site or uploading preconfigured databases when images and other on-the-fly features need to be loaded.

To solve this issue go to your sites/default folder.
1. Right Click 'default'
2. Go to Security tab at top
3. Click 'Edit'
4. Click 'Add...'
5. Type in IUSR
6. Scroll down and make sure Write has a check box under Allow
7. Rest.