mod_rewrite error with 404 redirect

Hi,
I’ve read numerous posts but I’m having luck with what has been recommended. From the reading, I think that it is associated with the permalinks settings.
I’ve tried the two rewrite rules below (one at a time and it did not help.

For my information, which .htaccess file is wp using, the one in my web home directory or the one in the wp subdirectory. I’ve assumed that it’s the one in the home directory.
I’ve tested the wp code in the main directory and one I #out the line indicated below, the 404 redirect now works, (no 500 error), but anything else that i’ve done is not helping.

# BEGIN WordPress
<IfModule mod_rewrite.c>
RewriteEngine On
RewriteBase / #what sub is wp looking for here?
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
#RewriteRule . /index.php [L] #first notation by WP
#RewriteRule ^(.+)$ /index.php/$1 [L,QSA] #This is also causing the 500 error
</IfModule>

# END WordPress

The server suppor no help in this, it my problem so you recommendations would be greatly appreciated.

Don