I had real difficulties with .htaccess in WP188.8.131.52 so ended up doing it slightly differently:
I finally managed to fix it by downloading some software called HTAccessible which you can get from http://www.tlhouse.co.uk/HTAccessible.shtml
What you do is create a .htaccess file using the software and upload it to your server.
Then update your permalinks in WP-Admin, copy and paste the code it generates into the .htaccess file you've just generated and upload it again.
It should then work.
You can also make your own 404 error pages using the software.