I have a similar problem..
I was running WP 2.6 on 4 blogs, and using /%category%/%postname%/ as my custom permalink structure and a static home page, with blog posts going to another page called “weblog”
i upgraded all 4 blogs to 2.7 and now my /%category%/%postname%/ structure will not work, i get 404 errors on every page and post – even when they appear in the archive and catagory links in the sidebar
I even tried a completely new installation, and before I imported my data bvack in i tested the /%category%/%postname%/ structure and it doesn’t work.. 404 errors constantly.
I can only get the lnks to work if i choose the default permalink structure and that is not desirable
can anyone help? please? (please note, i am not very techie)
much appreciated . JF