Hm, found it. For some reason my mod_rewrite was unchecked in options>general.
mod_rewrite checked is working for me, however I see this:
Setup did not detect a working mod_rewrite facility.
Not sure why the error, since it's working...?
Also, I noticed my .htaccess is from 1.4.4. Is there a way to rebuild htaccess?
Setup should have told you that the file needed upgrade. Perhaps the file permissions prevented it from doing so. You should simply remove your .htaccess file and re-run setup. The 1.4.5 .htaccess file is much simplified.
As to the error, Setup attempts to use a rewrite url to link to a local script. If that script does not run then it presumes mod_rewrite is not working. So maybe there was an error somewhere in running that script.
Rerunning setup worked. But was giving me an error that it already existed. I clicked the button to replace it, and it wouldn't clear the error.
So then I deleted my .htaccess, and it gave me an error that it was missing. So I clicked the button to copy and it wouldn't clear the error.
Finally, I ran touch .htaccess and chmod 777 .htaccess and it worked.
Not sure why your setup wasn't able to do that for me, either permissions or a bug, but I'm all set now it looks like.
(and yes, you're right, a dramatically smaller .htaccess file in 1.4.5)
