I checked replication and it is working.
I looked at the document for preferred servers and replication. It had an reference to setting up a HTTP share. It worked for lower version IIS but not for IIS ver 7.5. There was a additional comment on the IIS 7.5 document that said they had to add iis_usurs as a user which I did but it still does not authenticate when testing from the preferred server configuration tool but it does work if I do a http://serverpath to drivers folder from my computer. On step 8 it talks about setting the anonymous credentials which I've tried different ones.
Going back to the drivers being downloaded from the Preferred server, in the Windows/temp/hiiclient log it only mentions the source server path but never the preferred server path. I may be wrong and it downloads from a preferred server but never mentions it in the log or if you run Hiiclient.exe from the client.