Permalink Problem

I have a WordPress 3.2.1 instance installed right in /var/www. (Recent Ubuntu server). I create a blank .htaccess and chmod 666 it. I got to Setup/Permalinks, switch from the default to custom /%postname%/. The .htaccess file is populated by WordPress.

I create a new page. It appears on the navigation bar (using Twenty Eleven 1.2). I click on the page name, and get "This error (HTTP 404 Not Found) means that Internet ... ".

Does the .htaccess need to be different when installing in /var/www rather than, say, /var/www/site-name?

Nick.