I had installed easyphp on Windows Vista to manage
a few sites in local machine engineered by snews,
a small php CMS.
I had modified httpd on apache uncommenting
the line:
#LoadModule rewrite_module modules/mod_rewrite.so
i had in all other pages apart index.php
a 404 error.
The question seems to be around
Windows Vista and .htacces files.
O.S. read phisically that file like an .htaccess
but it doesn't read it!?!?
i haven't that problem with other cms
it's so strange
It sounds like your rewrite is just incorrect ...
Or maybe linked to the fancy "Programs" directory behavior in Vista.
Try moving your document root to another place, such as C:\var\www\