Custom WordPress Loop not paginating

Hey there

I have a custom wordpress loop running but when I try get to the second page it seems to end up with a page not found? Im developing on Carrington Jam. Here is my loop:

<?php
$limit = get_option('posts_per_page');
query_posts('showposts=' . $limit . '&paged=' . $paged .'&cat=18'); ?>

<?php if (have_posts()) : ?>
	<?php $count = 0; ?>

<?php while (have_posts()) : the_post(); ?>
		<?php $count++; ?>

		<?php if ($count == 1) : ?>

<!-- featured post stuff here -->

<?php else : ?>

<!-- other posts here  -->

<?php endif; ?>
<?php endwhile; ?>

<?php else : ?>

<?php endif; ?>

<?php cfct_misc('nav-posts'); ?>

Any Ideas on what I may be doing wrong?