I have 2 WordPress installs on the same domain and server. Custom (pretty) permalinks worked on one, but not the other. Domain names have been changed to protect the innocent. 

I have:
http://www.mysite.com/site
which is in development. And
http://www.mysite.com/wordpress
which has been around for a while.

Both have the custom permalink setting of /%category%/%postname%/

/site gives me a 404 error.
/wordpress works fine.

Their .htaccess files are identical except that /wordpress’s says "wordpress" where /site’s says "site".

# BEGIN WordPress
<IfModule mod_rewrite.c>
RewriteEngine On
RewriteBase /site/
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
RewriteRule . /site/index.php [L]
</IfModule>

# END WordPress

The server is a Deluxe Linux server on Godaddy.

I followed the standard method of waiting after setting up the permalinks on a Godaddy server. I waited for days and /site still did not work.

/wordpress did not have the custom permalinks on yet.  It started working immediately after switching. (I think there may have been an existing empty .htaccess file.)

So, same versions of WordPress, same Linux server, similar setup, no weird plugins, same .htaccess file, same database with different prefixes for the tables.

I have tried reinstalling /site using the built-in updater.  I even tried deleting the database tables and uploading a fresh install of WordPress.

Then I had the idea to rename the "site" folder thinking maybe "site" was a reserved word or something.  So I went into the General settings, changed the paths to http://www.mysite.com/web, saved changes, and used FTP to change the folder name from "site" to "web".

It worked.

Even the .htaccess file was automatically changed.

Just to be sure, I changed "web" back to "site" and the permalinks stopped working until I changed it back to "web".

Does anyone have any insight?  Is this a WordPress, Apache, or a Godaddy thing?