WordPress MU

I'm using Godaddy with a dedicated ip and I've added the A record with the "*". I'm trying to install WordPress MU version 2.8.6. I've tried installing with subdirectories and subdomains with little success. I can get it "sort of" working with both.

With both types of installs I have been able to login as site admin. With both types of installs I haven't been able to visit the hello world blog post; it results in a page not found error. As the urls generated are different I assume they each have their own problem. I also get a page not found error when clicking the "Create a new blog" link from the front page. It redirects me to http://mydomain.com/wp-signup.php, which I verified the file exists, so I don't understand why I'd get that error.

Here's some more details about each installation. I've done 2 days worth of tinkering, deleting everything and starting over and trying new things just to get to this point. Hopefully someone can help me solve this problem so I can get some sleep! lol Thanks in advance.

For Subdomain Install:
I wasn't able to login as site admin until I changed some path settings, like siteurl, home (in wp_1_options) to "mydomain.com" from "mydomain.com/mydomain", and the same goes for the path field in the wp_site table. I couldn't actually login successfully because it would keep redirecting me to the login page. What I had to do was visit the main page and click the "Site Admin" link to access the dashboard. Hello world url formatted as http://mydomain.com/mydomain/2009/12/20/hello-world/

For Subdirectory Install:
So far the main issue was that visiting mydomain.com resulted in a "fatal error could not find blog!" error. Once I changed the siteurl, home and path the blog began to load at mydomain.com without error. But again, I'm not able to visit any posts, etc. After changing those settings, with this install the hello world url is formatted as http://mydomain.com/blog/2009/12/20/hello-world/

I realized this morning that by default, MU was using permalinks. When I turn those off and go to the standard mydomain.com?p=1 format the hello world post works.

I think changing the permalink setting has also made the "Create a new blog" link to start working from the main page.

I've also tested adding a blog; which seems to work successfully (and they show up in the site admin area) until you try to visit the blog. WordPress generates the following url pattern.
http://mydomain.com/mydomain/testblog/ When I go to that url I get a page not found error. I even modified the url to http://mydomain.com/test/ and it doesn't work.

Is mod_rewrite turned on?

About a half hour ago I uploaded this to my .htaccess file. The post(s) I found this at said it would take up to an hour for the update on Godaddy. I don't know anything about htaccess; does this look like I've done it right where "/mydomain/" equals the subdirectory where my files live because this install isn't on a primary domain. Thanks.

# BEGIN WordPress
<IfModule mod_rewrite.c>
RewriteEngine On
RewriteBase /mydomain/
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
RewriteRule . /mydomain/index.php [L]

RewriteCond %{REQUEST_URI} ^/(stats/|missing\.html|failed_auth\.html|error/).* [NC]
RewriteRule .* - [L]

RewriteCond %{ENV:REDIRECT_STATUS} 200
RewriteRule .* - [L]

</IfModule>
# END WordPress

It's not working yet, so I'm going to assume it's wrong. The default htaccess.dist file was all garbled and ran together when I downloaded it, does anyone have a clean version?