NinjaStory, this appears to be a common problem in WP 2.5 and I have not read of any fix for this. However, I was able to get it working on my site by changing my custom permalink from…
/index.php/%postname%/
to..
/index.php/%postname
Removing the %/ at the end got it working. Not sure why. The link that moshu posted is useless since it doesn’t address this bug. Google it, a lot of people are having the same problem when “upgrading” to WP 2.5.
