Derek,
Do you have an ArcGIS web adapter running? When I added the ArcGIS_Security folder to wwwroot and converted it to an application in IIS8.0 (also running winSvr2012), I had to make sure I changed the "app pool" to point to the web adapter in the pull down menu. If I didn't do that, I would get the "internal server error", but after changing it, everything worked fine.