Hi
I am replying to this because I had a similar problem and I guess I have the same 'expert' status.
Having received all the 500 and 404 errors I fiddled around with the.htaccess file and as per the JoomSEF documentation commented in and out, all to no avail.
I finally got everything working by commenting out one additional line as follows
#Options FollowSymLinks.
I suppose this is server specific but this suggestion is offered in the original .htaccess file which is included with JOOMLA

It is well worth the effort to get joomSEF to work the URL's it generates are excellent.

Editing the .htaccess file will depend on your server set up ( sometimes it is hidden from an FTP listing). I could not do it by FTP but I did manage to use an editing tool provided by my hosting company listed under 'file manager'. But it will be possible to edit that file one way or another.