i am setting up wordpress 2.9.2 on my b2. all seems well except that i cannot specify custom permalinks such as /blog/%postname%/.
/index.php/blog/%postname%/ appears to work okay but it displays "index.php" in the url ahead of the link and is not quite the same as if i could use /blog/%postname%/ alone which would display <name>.com/blog/%postname%/ (without index.php between .com/ and /blog.
when i try to use /blog/%postname%/ i get the 404 broken link error when i try to navigate through the site.
wordpress docs say that on linux mod_rewrite and AllowOverride must be enabled. as far as i can tell this is the case. .htaccess is updated when the option of default v. custom permalinks is switched.
this is really frustrating. i have tried every fix i can find in wordpress forum and other web searches for "linux wordpress 404" that seems even remotely plausible.
the moderators and admin at wordpress forum have given up trying to help with this issue.

please advise.