The miiserver.exe.config file was either corrupted, or contained bad data.
In this particular case a few environments were set up with FIM for different purposes: FIM DEV for development environment and FIM PROD for production. The troubleshooting on the FIM PROD server pointed
to problems with the miiserver.exe.config file. In this case we were able to take the config file from the working FIM DEV environment and copy it over to the FIM PROD server.