500 error with .htaccess; site not found without .htaccess

I just completed a fresh install of WP3.1 on a fresh VPS. I followed the codex and…
1. Setup http://www.primarydomain.com
2. Cpanel’d a subdomain called *.primarydomain.com
3. Parked http://www.secondarydomain.com
4. Installed WP3.1 in the public_html directory on http://www.primarydomain.com
5. I set permalinks to /%category%/%postname%/
6. Added define(‘WP_ALLOW_MULTISITE’, true); to wp-config.php
7. At WP Tools>Network selected subdomains
8. At the Site Admin tab I added a new site: secondarydomain.primarydomain.com
9. Verified with host that mod_rewrite was enabled
10. Per WP Newtrok Setup I created .htaccess with the contents:
RewriteEngine On
RewriteBase /
RewriteRule ^index\.php$ – [L]
# uploaded files
RewriteRule ^files/(.+) wp-includes/ms-files.php?file=$1 [L]

RewriteCond %{REQUEST_FILENAME} -f [OR]
RewriteCond %{REQUEST_FILENAME} -d
RewriteRule ^ – [L]
RewriteRule . index.php [L]

11. Added the foolowing to wp-config.php
define( ‘MULTISITE’, true );
define( ‘SUBDOMAIN_INSTALL’, true );
$base = ‘/’;
define( ‘DOMAIN_CURRENT_SITE’, ‘vpsfamily.com’ );
define( ‘PATH_CURRENT_SITE’, ‘/’ );
define( ‘SITE_ID_CURRENT_SITE’, 1 );
define( ‘BLOG_ID_CURRENT_SITE’, 1 );

At this point, I get 500 errors on both the dash, primarydomain.com and secondarydomain.primarydomain.com

I looked at MySql and the database looks correct with wp_comments, wp2_comments, etc., etc plus wp_blogs, etc. etc. The sites are listed under “My Sites”

If I delete the .htaccess file, primarydomain.com and the dash both resolve okay but secondarydomain.primarydomain.com returns “Server not found. Firefox can’t find the server at secondarydomain.primarydomain.com.

So, I suspect the .htaccess is the problem but I can’t figure it out. Any thing I’m missing here?
Thanks, Bill