cant set custom permalink (on windows server)

hi,
i just installed wp2.7 on an windows server, and i cant change the custom permlink. i want to change it to be /%postname%/ (a certain plugin needs it in order to wrodk properly).
every time i change it, it looks fine – but in the posts list, when i click “view” it takes me to a 404 page. (the right url, but it isn’t getting the page itself).

i’ve tried for hours looking thru all wp codex & forums but nothing seems to fix it…

(may i just note that i’m using wp2.7 on apache and not getting any errors)

thanks a lot 🙂