If you are using IIS7 and have administrative privileges you can use Microsoft’s URL Rewrite Module , Read this for more information.

This article briefs about the technique used to make the permalinks work with IIS6.

Working with Permalinks on IIS6 (without admin privileges/ istallation)

• Option 1 (put index.php at the start of permalink)

/index.php/%year%/%monthnum%/%day%/%postname%/

to make this work in IIS , add the below lines to php.ini and store in the web root or download the file from here

      
 cgi.fix_pathinfo = 1
 cgi.force_redirect = 0


Option 2 (Permalinks CSS using Custom 404 Redirect)
PHP version (see here for referred article)
Save the below code as a php file (Ex: 404-handler.php) or save the file from here
$qs = $_SERVER['QUERY_STRING'];
$pos = strrpos($qs, '://');
$pos = strpos($qs, '/', $pos + 4);
$_SERVER['REQUEST_URI'] = substr($qs, $pos);
$_SERVER['PATH_INFO'] = $_SERVER['REQUEST_URI'];
include('index.php');
?>

- Once saved point set custom error page to the above file.
- Go to Options -> Permalinks in your Wordpress admin page, and choose an appropriate structure for your links.
ASP Version (see here for referred article)
- Download files here
- Upload htaccess.php and errorpage.asp into the root directory of your blog.
- Set the custom error page of your site to errorpage.asp.
- Change permalinks settings in the format you want. Ready to go.
If you any trouble installing the asp version you can comment here.
This article is more useful for people who use shared hosting or who donot have privileges to install any software, in case you have privileges to install softwares please use the below links
Wordpress URL Rewrite by Binary Fortress Software and Dean Lee
For more info please use this link.