Permalinks, mod_rewrite and mod_speling: Conflict?

Has anyone run into a conflict between mod_rewrite and mod_speling when using permalinks?

We’re having trouble implementing mod_speling on our system — running WP 2.7.1 on Apache (SUSE Linux), with WP in the document root directory. My site administrator tells me:

…the culprit was a series of Rewrite rules in /srv/www/htdocs/.htaccess that seem to have been added by the WordPress installer. These were re-directing any documents that were not found to index.php. This was occurring BEFORE mod_speling processed the request.

Are permalinks and mod_speling incompatible?

My admin also says:

The only solution I can think of that could possible work would be to move your main site into a subdirectory (applying the rewrite rules at that level) and put an index.html that simply redirects from the main document root to that subdirectory.

Any thoughts?

Thanks!