I have read some of the threads in this forum regarding 500 Internal Server Errors when Permalinks are activated in WP. I experienced the same problems, so I took it to my host's support dept. Here is the response that I received:
"We are running php as cgi module on server. This is to ensure the server
security against hacks and sql injections implemented thru php scripting.
Hence the rewrite rule specified in .htaccess wont work."
Is there another way around this? I guess I could manually create a page, so I'll have to learn a few things...