This is really very easy. It is also not a good idea for both security and performance reasons. This is specifically for Windows 2000 Server, IIS 5.0. For Windows 2000 Pro, see these instructions. For older versions you should see http://www.pythonpros.com/arw/pws.html for different instructions.
First make sure that Python is installed, IIS is installed and running, and that you have script permission selected. Once this is all working select

Start | Programs | Administrative Tools | Internet Services Manager

This window will appear.

Right click on the place you want the associations to apply to and select [Properties] from the pop-up menu and Click the Home Directory tab (or Virtual Directory or Directory if it is there) and press the [Configuration...] button. Select [Add] under the [App Mappings] tab. Next, Browse for python.exe and choose an associated file extension. The path needs quotes if it has spaces, and you need to add -u %s %s to the end.

"C:\Program Files\Python\python.exe" -u %s %s
or
C:\Python20\python.exe -u %s %s

Any script in the covered directories with the associated file extension will be executed by Python. As noted other places, it is probably a good idea to use something other than .py. Microsoft provides general instructions for this at http://www.microsoft.com/windows2000/en/server/iis/ (click on index then type in cgi and look under configuring).

Please contact me with questions or comments.