I believe IIS can only connect to Oracle over ODBC, not using native Oracle TNS calls. I recommend you install the ODBC drivers that are included on the Oracle CD-ROM, and not use the ones that come with Windows. If I remember correctly, the ones from Oracle are actually made by Merrant Corporation and licensed by Oracle for distribution with the database. These ODBC drivers are designed to the Oracle TNS / Oracle Net files to provide a more natural connection to the database than other ODBC drivers can provide. The drawback is a copy of Oracle Client gets installed with the ODBC drivers, requiring more disk space.
Since you are using Oracle 8.1.7, don't use the ODBC drivers that come off the CD ... You will need to download 22.214.171.124 or above Oracle ODBC drivers. There were bugs with the drivers under 126.96.36.199... Get these from Metalink