Comment 7 for bug 980869

You usually have to enable the allow_override directive in the /etc/apache2/sites-enabled/000-default config. (just an example on a debian based machine).

On my machine it looks like this:

<Directory /var/www/chive/trunk/>
AllowOverride All
</Directory>

Anyway, good to know that its related to the rewriting, so we will fix this for 1.0.4.
As already mentioned, you can resolve this with the Allow-Override setting until I have provided a fix.