My question is in the context of ease of development with MS development tools and IIS.
What are the pros and cons to developing directly on Windows Server 2008 R2 instead of Windows 7?
I've used both and only noticed a slight difference so far.
One pro of server 2008 R2 is you have the Server Manager. This gives you access to frequently needed features and services. In Windows 7 it takes a few more mouse clicks.
Another pro for Server 2008 R2 is your development environment is more like production. I haven't run into any issues.
One small pro for Windows 7 is you have some eye candy features enabled by default. Some might see this as a con. If you want you can enable Aero in the server 2008 R2. I find the snap and shake features come in handy once every blue moon.
Side Note:
If you want to do WP7 development you might want to choose Windows 7. The Windows Phone Developer Tools are not officially supported on operating systems other than Windows Vista or Windows 7 according to this MSDN blog post.