Windows XP Pro SP 2
XAMPP

Error Message:

Server error!

The server encountered an internal error and was unable to complete your request. Either the server is overloaded or there was an error in a CGI script.

If you think this is a server error, please contact the webmaster.
Error 500
localhost
02/27/08 13:04:31
Apache/2.2.6 (Win32) DAV/2 mod_ssl/2.2.6 OpenSSL/0.9.8e mod_autoindex_color PHP/5.2.4

SOLVE:

Mod_rewrite needs to be enabled on xampp for htaccess to work. Its an apache server by the way so htaccess does work.

Find the file called httpd.conf, it should be located in
XAMPPInstallDirectory\apache\conf\

Open with notepad and find this line
#LoadModule rewrite_module modules/mod_rewrite.so
Remove the #, save it, restart apache (if running).