I'm also having the same big problem as Peter -- there is some additional information at a different thread:
but it says basically the same.
Still, my situation is just like Peter's: when I delete the .htaccess-file, my blog comes back, but no link except "Login" works; if I try to follow the suggested procedere, replacing .htaccess with an empty plain-text-file, etc., and then try to hit "Update PermaLinks" I just get a 404, 500-error.
My WP is running on a free remote webserver about which I have very limited knowledge and control -- it apparently runs Apache, but I have no clue what how rewrite_mod is handled.
Please, if anyone could help?
That's the rather most serious episode in my WP-experience so far.
I dont get it that there is no way just to get back to the situation before I started to play with Permalinks (i.e. just hitting the "Update"-button in 'Options'/'Permalinks' ...), to the situation with non-modified links within your blog. I mean, right now, my WP is screwed!