Are you sure your default <Directory />
settings aren’t getting overridden somewhere else?
I have mine directly in the vhost and .htaccess and rewrite rules work fine.
<VirtualHost *:80>
ServerName wp.project
DocumentRoot "/Users/chris/Sites/wp.project"
<Directory "/Users/chris/Sites/wp.project">
Options Indexes Includes FollowSymLinks
AllowOverride All
Order allow,deny
Allow from all
</Directory>
</VirtualHost>