2.7 works fine with the default permalink settings.
I was manaully putting the code in the .htaccess file. But I did change the permissions to 777 for .htaccess, changed to default permalinks. I then made sure the .htaccess file was empty but had 777 permissions. Also, the .htaccess is in the 'wp7' directory, which is where my 2.7 install is. At this point, 2.7 works as it should with default permalinks, and there is an empty .htaccess file with 777 permissions.
I then changed the permalinks from default to 'Day and name' in the Settings >> Permalinks in the admin area, and clicked "Save Settings". No code was shown for the .htaccess file. So I checked the .htaccess file and it had this in it:
# BEGIN WordPress
<IfModule mod_rewrite.c>
RewriteEngine On
RewriteBase /wp7/
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
RewriteRule . /wp7/index.php [L]
</IfModule>
# END WordPress
But as before, when I try to click on a link in Wordpress, it gives me "Error 404 - Not Found".
As you suggested, I installed "AskApache RewriteRules Viewer" and it states the following:
> Permalink: /%year%/%monthnum%/%day%/%postname%/
> Writable .htaccess file found
> mod_rewrite found
> Not using pathinfo style index permalinks
> Using mod_rewrite permalinks
Any thoughts?