404 on any page creation

Any ideas?

Logs when accessing said forum page:
[Sun Mar 04 16:57:36 2012] [error] [client 192.168.123.165] File does not exist: /srv/www/htdocs/sites/teknerds/blog/forum, referer: https://teknerds.net/blog/wp-admin/post.php?post=67&action=edit
[Sun Mar 04 17:03:28 2012] [error] [client 74.125.156.80] File does not exist: /srv/www/htdocs/sites/teknerds/blog

This seems to ba a WP issue as when you create a page and click on that page you will get a 404. Mod_rewrite is loaded and on.

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

# END WordPress
With permalink set to month and name. When i change permalinks to default, the htaccess is blank so i know it is getting written.

This is definately a WP issue; clicking on a post title gives a 404 with pretty permalinks. https://teknerds.net/blog

Wow, as active as these forums are and no one has offered any help. Anyone got any ideas? The WP site is installed in a sub-directory as we have a non-WP site in our root. So thee codex on giving WP its on sub-dir seems to be not what we want (already have a non-WP site there with an index.php in it).