single.php overun by 404

When clicking on the title of a post instead of loading the single.php page it appears my 404.php is loaded instead.

Any idea why this is happening? This is my loop on my index page.

<div id="container"> <!-- THIS IS WHERE THE LOOP STARTS -->
			<?php if(have_posts()) : ?><?php while(have_posts()) : the_post(); ?>

				<div class="post" id="post-<?php the_ID(); ?>">
					<h2><a href=”<?php the_permalink(); ?>”><?php the_title(); ?></a></h2>

					<?php the_post_thumbnail(); ?>

					<div class="content">
						<?php the_content(); ?>

						<p class="postmetadata">
	<?php _e('Filed under:'); ?> <?php the_category(', ') ?> <?php _e('by'); ?> <?php  the_author(); ?><br />
	<?php comments_popup_link('No Comments »', '1 Comment »', '% Comments »'); ?> <?php edit_post_link('Edit', ' | ', ''); ?>
						</p>

					</div> <!-- content -->

				</div> <!-- post -->

			<?php endwhile; ?>

				<div class="navigation">
					<?php posts_nav_link('','back','next'); ?>
				</div>

			<?php else: ?>
				<div class="post">
					<h2><?php _e('Not Found'); ?></h2>
				</div>

			<?php endif; ?>
		</div> <!-- containter******* THIS IS WHERE THE LOOP ENDS-->

I have looked all over and cant seem to find an answer. my permalink settings are set on default and i have tried all options.