Navigating Links goes to 404?

I have just set up my wordpress site after much deligation as to which blog software would serve my needs best and the features look good – just what I want, simple, only 1 blog, quality code and clean URL’d.
Right, I had it set up fine (installed through fantistico in cpanel :-P) and I uploaded my new index.php file and stylesheet, for some reason the page doesn’t load the stylesheet so I have a very drab theme at the moment but I think it has soemthing to do with my next problem:
Whenever I go to click on my entries title (just the classic Hello World standard entry) It tries to take me to the permalink /archives/2004/18/08/hello-world/ (only temorary) but I get taken to my main sites 404 error page. I have the blog set up as a folder /blog under my domain (will be changed to a subdomain once everything is working, I set it up as a subdomain before and then couldn’t get into the admin CP for some reason ?? ).
I recon this is to do with either my domain .htaccess file or the .htaccess file in the /blog directory (wordpress). I actually attempted to upload a blank .htaccess to the /blog directory to try stop apache going down a level to get my domain’s 404.
Can I change anything or create a new .htaccess file that will stop this? My domain htaccess has rewrite rules (what I blame for the glitch) and error handling data, is there a way to make WP not use that .htaccess?
Thanks for any help!