The problem stuck out like a sore thumb for the past 2 years, but as of the next release of MapGuide Open Source, Windows Server 2003 users can now choose the web site they want to install the MapGuide Web Extensions to!
Why did it take so long? Doing the custom action in .net would've been a piece of cake, but since we cannot afford the luxury of assuming the .net Framework as a mandatory requirement, we had to resort to doing the custom action in C++, which is no walk in the park. Thankfully, wcautil and IMSAdminBase provided the required tools to make this possible! Also, real world™ priorities had stolen whatever time I had to tackle this problem, until now.
Note that this applies to IIS6 only, as IIS7 uses a totally different form of configuration although we can still apparently use the same IMSAdminBase COM API, so if time/resource permitting I may be able to give IIS7 the same loving treatment.