Wow, it sounds like you have a nightmare of a setup.  The performance must really be horrible, I remember we had some things on a network folder and found that to be a perf bottleneck of up to 4x (5 seconds just to change a property in a winform designer). 

Although that network monitoring is slow, there is a reason people have SCM programs, I'd suggest you invest in one and let people have it setup on their sandboxes.  It's easy enough to create an automatic script to setup the IIS websites (to keep everyone consistent), and you can setup nightly build methods to verify the integrity of the tree.  As far as different people with different code, that is the point of the sandboxing on a local machine. Someone can try something that might break others, without affecting them. 

Good luck with that.