Excellent!
My guess as to why it suddenly worked are two-fold:
Browsers appear to be able to cache directives in .htaccess files (for the want of a better way of explaining it).
An example: tonight I uploaded the previously discussed .htaccess file that redirects you to SitePoint to one of my servers. I tested it, it worked (I was redirected), I then deleted the .htaccess file and thought nothing more of it.
When I entered the site’s URL in the browser 20 minutes later (bearing in mind that I’d deleted the .htaccess file from the server before hand) I was still redirected. It was only when I cleared my browsers cache that I could access the site as normal.
Maybe your browser remembered a failed attempt, then when you tried something that should have worked, it still failed??
Also, the exact permissions you need to give WordPress, so that it has write access to your .htaccess file depend on your server setup.
It seems unlikely that the “# BEGIN WordPress” and “# END WordPress” comments should stop this from working.
AFAIK these are there, so that WP can safely overwrite anything that is between them, but won’t touch the rest of your .htaccess file.
This is just speculation on my part, but at least we got it working in the end.
more posting while typing