I don’t have the reputation to comment so I’m sure this may be dumped if not totally complete/accurate; but, doesn’t WP work in a way that it goes through the core’s index.php file using rewrites and such. This being the case, if you don’t specify a specific file that you are accessing, you aren’t really playing in that sub-directory.
If you created a file called test.php inside of the directory and accessed that directly then the expected web.config should be used; however, since you are not accessing a specific file directly (and are just using and endpoint and the folder structure – which has rewrite rules in WP), this may be the reason that the web.config file is being ignored and may be the answer to your question.