What you have (probably) is an error with your .htaccess or your local
server wasn’t set up / enabled to support permalinks… Try disabling the
Permalinks in admin settings and it should work great.
In most local host you can enable Permalinks support..
(its called a rewrite module)
Here is the option on my localhost (using WAMP)
.
Hope this helps.
Cheers, Sagive