In your Web Application Project go to Properties -> Web, then set Use IIS Express -> Project to "http://localhost" and Override Applicationroot URL to "http://dev.example.com". Hit "Create Virtual Directory" (if you get an error here you may need to disable IIS 5/6 or change IIS's Default Site to anything but port :80).
In the same panel as Step 1 set the Start URL to "http://dev.example.com"
Open %USERPROFILE%My DocumentsIISExpressconfigapplicationhost.config (Windows XP. Vista and 7 paths will be similar) and edit the site definition in the config block to be along the lines of the following: