I upgraded from 1.2.2 yesterday and had everything working fine UNTIL I visited the Permalinks page just snooping around to see what was different. Upon visiting the Permalinks page AND WITHOUT clicking the update button I went to another page and BAM I started getting Internal Server Errors.
After a period of time troubleshooting the server and finding no problems there I checked the htaccess file. To my confusion it has changed and had a bunch of code I didn't place. I replaced the htaccess file with my orginal, knowing it worked, and the site worked again.
I then visited the Permalinks page again and clicked to another page. To my dismay WP stopped working again. Upon inspection of my htaccess file I found it had the new codes in it again. Now, mind you my original codes are in there already.
I downloaded the htaccess file and removed the 1.2.2 instructions. Now, when I visit the Permalinks page the htaccess file still has the instructions appended automatically, but fortunately it doesn't stop my WP from working.
My suggestion is stop the automatic updating of the htaccess file. I've already gotten 5 iterations of the same code in my htaccess file from just visiting the Permalinks page.