As I understand it from the question, both client and server parts is yours, both in .NET. Is so, the classical Web service would be a lame (or a hassle, the obsolete thing). You should better use WCF. Microsoft maintains that Web services (non-WCF) should be considered obsolete for all new development, and I would agree, adding that the obsolete Web services might be needed for interoperability with other systems (Java-based and a lot more). If this is not your case, certainly use WCF.
Now, should you host WCF in IIS? It really depends. If you are already using IIS as a Web server, for example, you can use it for hosting WCF. If hosting of WCF is the only purpose of IIS, you should know that you can quite easily self-host WCF in the service application (presumably, a Windows service).
Please see:
http://msdn.microsoft.com/en-us/library/bb332338.aspx[
^],
http://msdn.microsoft.com/en-us/library/ms733766%28v=vs.100%29.aspx[
^].
Good luck,
—SA