Hi,
I'm not sure if I've found a bug or am just doing something wrong. It seems that using WordPress permalinks is causing a problem on any url outside of the WordPress directory.
For example, I have WP at example.net and a subdomain at sub.example.net well if I use the default .htacess everything works fine inside of WordPress but seems to cause a loop during a 404 search outside of WordPress.
I think the problem is that the line RewriteRule ^index\.php$ - [L] is trying to find index.php in the subdomain folder and is failing so it's getting grumpy and throwing a 500 error. If I comment out this line the 404 error works but (obviously) not WordPress permalinks.
Not sure if there is an easy fix and I'm just missing something here.
Here is the complete .htaccess
# BEGIN WordPress
<IfModule mod_rewrite.c>
RewriteEngine On
RewriteBase /
RewriteRule ^index\.php$ - [L]
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
RewriteRule . /index.php [L]
</IfModule>
# END WordPress