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In IIS 7, what is best practice? Should I create an application pool for each application, or should I share an application pool with as much application as possible?
Are there any performance drawbacks or security issues related to one of the options?
Each application pool is an instance of W3wp.exe, a worker process for that site or set of sites. By placing each application in a seperate app pool, you ensure that problems that could potentially cause problems within the app pool do not cause problems with other applications. There is obviously an overhead to operating like this in terms of resources.
So generally, for simple sites and blogs I usually put these in a shared app pool. For more intensive or important applications, I seperate into individual app pools. This is just a guide to how I operate.
I believe IIS7 now creates seperate app pools when you create a web site (not 100% though).