Why does htaccess rewrite break wp-login?

using wp version 2.0.2

After setting up a rewrite rule in .htaccess, I cannot log into my blog.

I get this error when trying to log in (as admin):

You do not have sufficient permissions to access this page.

Is this because HTTP_REFERER is no longer what wp is expecting?

Here is the .htaccess rewrite:

RewriteCond %{HTTP_HOST} ^www\.mysite\.org$ [NC,OR]
RewriteCond %{HTTP_HOST} ^mysite\.org$ [NC]
RewriteCond %{REQUEST_URI} !^/mydir/.*$
RewriteRule ^(.*)? /mydir/$1 [L]

What this does is direct requests for www.mysite.com to www.mysite.com/mydir/

wp-config.php is located at:

/public_html/mydir/wp-config.php

I’ve tried both http: //www.mysite.com/
and http: //www.mysite.com/mydir/ as the option_value in the wp_options table. I get the same error in both cases.

If I upgrade to 2.0.3 will I avoid this problem?

Are there any other work-arounds for this in 2.0.2? Or is this being caused by something NOT related to HTTP_REFERER?