Permalinks to Custom does not work (out of box)

Sounds like to that the Allow Override directive is still set to NONE for your VHOST

By default this is disabled, so even if you enable mod_rewrite via sudo a2enmod rewrite your .htaccess will be ignored.

You’ll want to login to your server (via Terminal / shell) and then …

sudo nano /etc/apache2/sites-available/default

look through the file for:

<Directory /var/www/>
    AllowOverride None
    Options MultiViews FollowSymlinks
    Order allow,deny
    Allow from all
    Header Set Cache-Control no-cache
</Directory>

Change the AllowOverride to ALL

Ctrl+x and save the file

then

sudo apache restart or sudo /etc/init.d/apache2 restart

see also http://drupal.org/node/134439

Let me know if the Allow Override was off please?

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