It's not IIS's fault that FTP doesn't support encrypted logins. The FTP standard mandates the transmission of passwords as plain text, so NO standard FTP server can offer that functionality.
Like Bill said, you'll need to use secure FTP (SFTP) or something else to allow secure access.
For example, I set up a SSH server on my Windows 2000 Advanced Server box and use a SFTP client to access it. Using SSH encrypts ALL communication between the client and the server. It's a little more difficult to set up, and there are other options to use SSH to log on to an anonymous site (i.e., use a SSH "tunnel") and encrypt the data transferred over the wire.