Not entirely, but close. What I was suggesting was simply the first step that you did, which was to disable the SEF in the global configuration. I don't think disabling the "System SEF" plugin is necessary, as turning it off with the Global Configuration setting should have kept it from being used even if the plugin was left enabled.
Well, if there was a problem before, this won't have resolved that problem, and it will still have to be dealt with.
I understand, but that can be very misleading - there are likely significant differences between your local system and our Debian based PHP-CGI v5.2.6 environments. This is one of the reasons I always develop on a "staging" site that is actually running on DreamHost servers when working with PHP based applications.
Mark, the only thing at this point that comes immediately to mind is the possibility of caching messing you up (The Joomla! cache setting, your own browser cache, etc.). I'd carefully check all of that and make sure I had all Joomla! caching turned off and a completely cleared computer/browser cache before proceeding - part, or all, of what you have been seeing could well be related to that.
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