This is what seems to have finally resolved the matter:
RewriteEngine on
RewriteBase /newsletter/activate/
RewriteRule ^subscription/x/(.*)/y/(.*)/?$ process.php?x=$1&y=$2 [L]
It works in the sense that there is no repeated host name in the rewritten URL, and process.php receives the variables and processes them without a hitch.
Thought this might be of interest.
Thank you very much for the time and ideas.
~ David