Thanks for the reply Heriz - I'm quite new to wordpress but isn't that to display the next single post rather than the next "page" of posts? - I'm probably wrong on this though.
I tried adding the code to the page both inside and outside the loop but this broke the page.
Just to be clear - I have a category page, that's displaying all the posts in the news category. The posts are limited to 3 so they should be paged. When I click "previous" it seems to go to the index page rather than staying on the category page. Also it says "Sorry, no posts matched your criteria"
I did see something that sounded similar at the bottom of here: http://codex.wordpress.org/Using_Permalinks (Paged Navigation Doesn't Work ) but I went though the fix with no joy.
Maybe I've set my whole loop up wrong. I have:
<?php if (have_posts()) : ?>
<?php while (have_posts()) : the_post(); ?>
<li><h2 id="post-<?php the_ID(); ?>"><a href="<?php the_permalink() ?>" rel="bookmark" title="Permanent Link to <?php the_title(); ?>">
<?php the_title(); ?></a> <span class="date"><?php the_time('F jS, Y') ?></span> </h2>
<p><?php $excerpt = strip_tags(get_the_excerpt());
echo $excerpt; ?></p> </li>
<?php endwhile; ?>
<?php posts_nav_link('','','« Previous Entries') ?>
<?php posts_nav_link('','Next Entries »','') ?>
<?php else : ?>
<h2 class="center">Not Found</h2>
<p class="center"><?php _e("Sorry, but you are looking for something that isn't here."); ?></p>
<?php endif; ?>
Maybe if someone would be kind enough to post their code I might be able to see where I am going wrong or if this is a HTACCESS problem.