I am using version 2.5.x. This is because I am using WP-United (integrated with phpBB) and that has not been updated for the new WP quite yet.
However, I tried one of the workarounds. I added 'category' and 'tag' to the base values. This eliminated the 404 errs but did NOT fix the problem.
Now, anytime a user clicks a 'category', 'comments', or 'tag' link he/she is directed to my home page which is located several directories lower than my WP installation.
For example, this is my install path:
/public_html/index.php (my homepage)
/public_html/steelersblog/ (my blog directory)
Now when I click a permalink, it directs me to my homepage. Below is an example of the url that it will forward me too.
http://www.planetsteelers.com/steelersblog/category/pittsburgh-steelers/offense-pittsburgh-steelers/
Does anyone know how to resolve this issue?