On a default Ubuntu install with Apache 2, the AllowOverride directive in your site's config in /etc/apache2/sites-available/<sitename> is set to Allowoverride None, which prevents mod_rewrite requests from being run, breaking the rewrite rules specified in .htaccess. I fixed this by changing AllowOverride None to AllowOverrride All, fixing the problem with the URL tracking.
* EDITED: It was stupid o' clock in the morning when I wrote the original fix, so I've edited it somewhat for clarity.
Ah, good to know. I'll add that to the documentation for v0.7. You can probably get away with just AllowOverride FileInfo Options.
Additionally, v0.7 will remove the reliance on mod_rewrite and will work with querystrings. There will still be optional .htaccess rules to allow pretty URLs, though.