DotNetNuke 05.06.00 (459) failing with "The AppDomain shut down because of a change to the application level configuration" message

Question

I've developed a DNN5 site for customer locally on my laptop and I am having problem moving it to a production server. Server is running Windows 2008 R2 (IIS 7.5). I've copied all the files, copied db, modified web.config to see the new db, checked to make sure dnn can see the db via connection string, made sure the directory permissions are correct (appdomain user has RW access to whole virtual directory) .. and it's failing me with following error message taken out of the portals/_default/logs directory:

<log LogGUID="a3f8aab9-36b6-4d95-a605-53b4b0b02c34" LogFileID="" LogTypeKey="APPLICATION_SHUTTING_DOWN" LogUserID="-1" LogUserName="" LogPortalID="-1" LogPortalName="" LogCreateDate="2/4/2011 11:52:57 AM" LogCreateDateNum="0" BypassBuffering="True" LogServerName="SERVER01" LogConfigID="">
    <LogProperties>
        <LogProperty>
            <PropertyName>Shutdown Details</PropertyName>
            <PropertyValue>The AppDomain shut down because of a change to the application level configuration.</PropertyValue>
        </LogProperty>
    </LogProperties>
</log>

I've been stuck on this for the last 3h .. so any hint's or advice is very appreciated.

Thanks!

Filip