Intresting that I am having the same problem, but I know that I have mod_rewrite apache mod working.
It seems that it is a 2.0 problem, it only occured when I upgraded, when I was using 1.5 my .htaccess file was always 5 times as long, now I get the exact same .htaccess file output no matter what configuration I use. I am familiar with rewrite rules, the wordpress seems to not be generating the correct thing.
I have reinstalled my wordpress twice to make sure that everything is working correctly and to try and regenerate the ‘default’ htaccess file.
# BEGIN WordPress
<IfModule mod_rewrite.c>
RewriteEngine On
RewriteBase /
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
RewriteRule . /index.php
</IfModule>
# END WordPress
