Have you changed your settings in the Apache conf that tell Apache to allow use of a .htaccess file? I only ask because I had a similar issue as this and the fix was to make rewrites to index.php become rewrites to /folder/index.php.
Almost all things related to the Apache configuration is handled in the httpd.conf. Look in the conf and I am fairly certain that you will run across a commented section that talks about the settings needed to allow the use of .htaccess files.