Giving WordPress Its Own Directory – Permalinks not working

I followed the instructions here http://codex.wordpress.org/Giving_WordPress_Its_Own_Directory and used the method “Using a pre-existing subdirectory install” and the site is mostly working fine.

Here’s what works…

The site now points to mydomain.com instead of mydomain.com/wordpress and when I use the navigation to get to posts or pages it works just fine. However, if I embedded the url in a link (ie. http://www.mydomain.com/wordpress/prettlink1), when I click on that link it gives me a 404, but the link works if I remove the “/wordpress”. However (and this is the strange bit…) if I have am embedded link that is an image or pdf etc. (ie. http://www.mydomain.com/wordpress/prettlink1.pdf) the link works fine. So I am mystified.

I suspect it might be an htaccess issue: but I’ve both reset my permalinks and allowed wordpress to create a new htaccess as well as created and uploaded my own.
ie.

# BEGIN WordPress
<IfModule mod_rewrite.c>
RewriteEngine On
RewriteBase /wordpress/
RewriteRule ^index\.php$ - [L]
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
RewriteRule . /wordpress/index.php [L]
</IfModule>

# END WordPress

The only other solution I have is that it’s something to do with my host server. I’ve done this before on other sites and never had a problem like this before, but this site has a lot of embedded links so I don’t want to redo them manually or edit the mysql if I can help it.

Did I miss something silly? 🙂