I have three WordPress installs, on separate domains, on two of them the 404's work to where the 404 page on the theme is displayed.
On one it just does:
The requested URL /asdfasd was not found on this server.
Additionally, a 404 Not Found error was encountered while trying to use an ErrorDocument to handle the request.
The only difference I can think of is 2.5 vs. 2.3, all were installed with the DH installer. The older ones were before there were "advanced" options on the DH panel.
The .htaccess file is the same, too.
I've a feeling it's related to that as the Stealth Login plugin does not work either.
Well, I thought I replaced it, so I went and looked again and saw it was not. It turns out that WordPress was editing the .htaccess file, even with the proper one from the other domain thats working. So I copied it over once more and set permissions to read only. 444. Can't delete it or change it.