Links within wordpress don't work, redirects to the root directory

My wordpress blog is in a subdirectory of my main site. But clicking on any links within the blog such as category or permalinks takes me back out to the main home page of the site in the root directory, instead of staying within the wordpress blog.

Here is what I’ve tried to correct it:
I’ve tried tweaking the permalinks setting to keep it in it’s own subdirectory and that just gets 404 errors and breaks the roots links to the blog.
It claims when I do this that I have to manually alter .htaccess for the permalinks since it’s not writable. But according to the file it is writable and says the exact same thing as it’s asking me to paste in. I tried deleting and re pasting them in anyway.

I tried tweaking ‘rewrite base’ and again it broke the links.
I’ve tried tweaking permissions in the .htaccess file and still it doesn’t work.

I also noticed I had a duplicate file in the root directory even though wordpress wasn’t there and tried deleting it figuring I could always recreate it. That didn’t work either.

I use fatcow hosting and could use some help here. Coding isn’t my strongest point and some posts I find on the subject are over my head. Am I missing something?

This is what the .htaccess says: ErrorDocument 404 404missing.html

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

# END WordPress

The site is at starhorsepaxdesigns
The wordpress blog is here.