You must type first character of "directory" lowercase. If you type "LogFile.Directory", log file directory doesn't change and you don't receive any error.
PS C:\Users\administrator> Set-ItemProperty IIS:\Sites\domain.com -Name LogFile.Directory -Value D:\WebSites\domain.com
PS C:\Users\administrator> Get-ItemProperty IIS:\Sites\domain.com -Name LogFile.directory
After these commands, log file directory is still same and no error!
PS C:\Users\administrator> Set-ItemProperty IIS:\Sites\domain.com -Name LogFile.directory -Value D:\WebSites\domain.com
PS C:\Users\administrator> Get-ItemProperty IIS:\Sites\domain.com -Name LogFile.directory
Now, log file directory has been changed.
PS C:\Users\administrator> Set-ItemProperty IIS:\Sites\domain.com -Name LogFile.Directory -Value D:\WebSites\domain.com
PS C:\Users\administrator> Get-ItemProperty IIS:\Sites\domain.com -Name LogFile.directory
After these commands, log file directory is still same and no error!
PS C:\Users\administrator> Set-ItemProperty IIS:\Sites\domain.com -Name LogFile.directory -Value D:\WebSites\domain.com
PS C:\Users\administrator> Get-ItemProperty IIS:\Sites\domain.com -Name LogFile.directory
Now, log file directory has been changed.