Pretty Permalinks – Why don’t they work? Help!!

I have just installed WordPress 2.8 on a smartyhost linux server. When I run an info.php file, it says that the mod_rewrite module is installed. I have also uploaded a .htaccess file in the root directory with the following:

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

When I enable permalinks (numbers) I cannot access the posts at all. It also appears that wordpress hasn’t changed the .htaccess file even though the permissions are set to do so. Help! What else can be done?
Also the codex offers the following suggestions:

* In WordPress’s home directory,
o The FollowSymLinks option enabled
o FileInfo directives allowed (e.g. AllowOverride FileInfo, AllowOverride All)

What does this mean to us uneducated? Any smart cookie that could help would be greatly appreciated….