Whoopee! I found a solution to make permalinks work for me on my godaddy server. I hope this might be useful for some of you on your systems.
My situation: I had installed wp 2.04, built content, links, etc. all was working great after many hours of hard work with site content and design, then turned on the permalink option… OUCH everything died.. as you have all described so painfully in this thread. I tried all the suggested mods and tricks and workarounds I could find with no luck… until just now… when I got lucky. Here’s the scoop (this worked for me on my godaddy server, your mileage may vary):
-uninstall MS Frontpage extensions (if installed)
-but that’s not enough. After uninstalling FP ext. my site still was totally dead–even the main page and admin pages– all dead. But don’t despair…yet…
-after uninstalling FP ext there was still be a vestigal .htaccess file in my root directory. Just to be safe I made a backup, then deleted it. Presto. Site is back up and the permalinks even work!
A note for those who wish to experiment with this fix: My WP install is in a separate directory (folder) from my main root directory. I didn’t touch the other remaining .htaccess file in the (lower) wp directory. If your wp install is at root level it’s possible these steps might also work for you, but of course be sure to backup any files before deleting just in case.
Hope this helps some of you on godaddy servers and maybe some others. Good luck!