I've noticed lots of posts about problems related to permalinks with WP2.0. I think there's something inherently wrong with the implementation. One specific problem that affects me is how 404's are related to permalink settings.
In my template, I have the following relevant files:
With the default permalink structure, it always goes to Home whenever I visit a nonexistent url (example, my.site/bogus.html).
With "Date and name based" and "Numeric" permalink structures, I correctly get the 404 page with nonexistent urls.
With my preferred custom permalink structure (/%category%/%author%/%postname%/), I get the following behavior on my WP2.0 test site:
http://wp2.cal-family.org/bogus.html - uses archive ( if (is_category())) template. WP2.0 thinks bogus.html is a category but displays all posts since the category doesn't exist.
http://wp2.cal-family.org/bogus.html/bogus.html - uses "Not found" message in index.php. WP2.0 probably thinks I'm looking for posts by the author "bogus.html".
http://wp2.cal-family.org/bogus.html/bogus.html/bogus.html - correctly displays the 404 template (404.php)
I'm not the only one with this problem:
I've updated functions-post.php and classes.php mentioned here: http://wordpress.org/support/topic/54340
Can anyone else confirm this? It's very easy to test.