Integration into non-wordpress site – Permalinks

Hey everyone,

I have successfully integrated a wordpress blog onto a non-wordpress site.
See here: http://arcmktg.com/blog.php

Everything works wonderfully, except I want to change my permalink structure(To postname), and when I do this I get an error…
“Sorry, no posts matched your criteria.”

Here is the code I am using to display my blog:

<?php
/* Short and sweet */
define('WP_USE_THEMES', false);
require('blog/wp-blog-header.php');
?>
<?php if ( have_posts() ) : while ( have_posts() ) : the_post(); ?>

 <!-- Test if the current post is in category 3. -->
 <!-- If it is, the div box is given the CSS class "post-cat-three". -->
 <!-- Otherwise, the div box is given the CSS class "post". -->

 <?php if ( in_category('1') ) { ?>
           <div class="post-cat-one">
 <?php } else { ?>
           <div class="post">
 <?php } ?>

 <!-- Display the Title as a link to the Post's permalink. -->

 <h2 style="padding-bottom: 8px; padding-left: 20px; padding-right: 20px;"><?php the_title(); ?></h2>

 <!-- Display the date (November 16th, 2009 format) and a link to other posts by this posts author. -->

 <p style="padding-bottom: 8px; font-size: 12px; padding-left: 20px;padding-right: 20px;"><?php the_time('F jS, Y') ?> by <?php the_author_posts_link() ?></p>

 <!-- Display the Post's content in a div box. -->

 <div class="entry" style=" font-size: 12px; padding-left: 20px;padding-right: 20px;">
   <?php the_content(); ?>
 </div>

 <!-- Display a comma separated list of the Post's Categories. -->

 <p style="padding-bottom: 20px; padding-left: 20px;padding-right: 20px;" class="postmetadata">Posted in <?php the_category(', '); ?></p>
 </div> <!-- closes the first div box -->

 <!-- Stop The Loop (but note the "else:" - see next line). -->

 <?php endwhile; else: ?>

 <!-- The very first "if" tested to see if there were any Posts to -->
 <!-- display.  This "else" part tells what do if there weren't any. -->
 <p style="padding-left: 20px;padding-right: 20px;">Sorry, no posts matched your criteria.</p>

 <!-- REALLY stop The Loop. -->
 <?php endif; ?>

There must be an easy fix for this right? Right now I have to use the default permalink for my blog posts, and I would love to use /%postname%/ but I can’t figure out a way to do this. Can anyone help?