Look man its up to you if you don't want to use this method. I choose this method because its easy, secure, the intranet users don't need to have rights to the folder (your IIS setup handles all that), you don't need to move the files around, in fact you don't change anything at all from a network point of view. Other network users can still access these files outside of IIS using the drive mappings already set-up, providing they have the relevant permissions. The virtual directory is just an easy way for your ASP page and IIS to access the folder.

To answer your specific questions:
1. Yes of course you still need IIS. You can't run ASP without it.
2. UNC path: if you have a drive already mapped to this folder then Windows Explorer displays the server and share name in the folder view.