UPDATED 4/29/2009 – My original conclusion about Permalinks not working with Godaddy hosting has a new conclusion. Zac Vineyard noted below that it can take up to an hour to update the .htaccess file on the server so that the Permalinks work. I have personally confirmed that this does indeed work. Thanks Zac!
The problem that I had was trying to setup permalinks for WordPress. Even though I had setup the .htaccess file and given it write permissions the permalinks would just go to Godaddy’s 404 page. The links did work with the standard setup.
So here’s the low down. There are 3 different levels of Godaddy Linux hosting accounts. They are –
The economy level of hosting does not give you access to mod-rewrite. Deluxe does. So you if permalinks are not working you need to call up Godaddy and upgrade your account.