So it turned out after fiddling with just about every setting, that it came down to the fact that IIS did not allow URL calls from w3wp.exe to the same "site" within the same IIS.
There is more on that here: http://support.microsoft.com/kb/316451
It wasn't the "MSXML2.ServerXMLHTTP.3.0" requests, these seems to work - and why it was so confusing. But in ABC PDF, there is obviously something similar, and so IIS was blocking it... in fact the entire "site" locked up while it was failing.
In the end all it took was to make a clone of the main site ("site2"), and changing the URL that was parsed to ABC pdf to use the clone site.