It seems as though you have multiple issues here.
Failed-Request Tracing Logs
To fix your missing logs issue, you must make sure that the user that is running your site's AppllicationPool has read/modify rights to the folder where those logs are generated, otherwise you won't see anything. See the section labeled "Enable Failed-Request Tracing" on this page: Troubleshoot Failed Requests Using Tracing in IIS 7
What isn't clear is the fact that the site's Application Pool Identity (found in Advanced Settings for Application Pool) is the account that needs read/modify rights to that folder.
Once that is fixed you can load the XML logs in IE and see a much clearer picture of what is going on.
401.1 - Unauthorized Issue
A possible fix to your 401 error is to make sure unlisted file name extensions are allowed in Request Filtering. Go to IIS --> Sites --> [your site] --> Request Filtering
You have two options here:
- Allow File Name Extension... and add the value "." (minus the quotes), see this answer.
- Edit Feature Settings... and enabled the option "Allow unlisted file name extensions"
The 1st option should work well, the 2nd option obviously opens up a gaping hole but allows everything so you should be able to get it working.
I hope that helps.