Wordpress Permalinks - won't update .htaccess

New installation of Wordpress. .htaccess file was not created, so I created one and set its permissions to 666. When I update Permalinks structure in Wordpress control panel it claims it was successfully updated, but radio buttons show the default “ugly url” option still selected, and checking shows it has not updated the .htaccess file. Dreamhost claims to have Apache, mod_rewrite, etc. What could be wrong?

Permalinks work fine for me and this is all that’s in my .htaccess files. I added the part in bold so the stats folder could still be accessed. The .htaccess file permissions are set to 644.

BEGIN WordPress

RewriteEngine On RewriteBase / [b]RewriteCond %{REQUEST_URI} ^/stats/(.*)$ [OR] RewriteCond %{REQUEST_URI} ^/failed_auth.html$ RewriteRule ^.*$ - [L][/b] RewriteCond %{REQUEST_FILENAME} !-f RewriteCond %{REQUEST_FILENAME} !-d RewriteRule . /index.php [L]

END WordPress

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