Rewriterule on .htaccess leads to 404 - .htaccess

Question

I am developing an application that's hosted on an apache server with PHP 5.
There is a website already running on the domain: www.domain.com. My application is on a folder called 'hotsite', and it can be accessed by the url www.domain.com/hotsite/.
The root folder contains a .htaccess containing:
/.htaccess:
XBitHack Off
RewriteEngine On
RewriteCond %{REQUEST_URI} \/([0-9a-z]{6})$ [NC]
RewriteRule ^(.*) http://www.domain.com/url/forward.php?%1 [L]
IndexIgnore .htaccess */.??* *~ *# */HEADER* */README* */_vti*
<Limit GET POST>
order deny,allow
deny from all
allow from all
</Limit>
<Limit PUT DELETE>
order deny,allow
deny from all
</Limit>
AuthName www.domain.com
AuthUserFile /home/intera/public_html/_vti_pvt/service.pwd
AuthGroupFile /home/intera/public_html/_vti_pvt/service.grp
RedirectMatch permanent ^/webmail$ http://http://mail.google.com/hosted/domain.com www.domain.com/hotsite/
In this 'hotsite' folder, there's a .htaccess file containing the following code:
/hotsite/.htaccess:
RewriteEngine on
RewriteBase /
RewriteCond %{SCRIPT_FILENAME} !-f
RewriteCond %{SCRIPT_FILENAME} !-d
RewriteRule ^(.*)$ /folder/index.php
Now, when I access www.domain.com/hotsite/, my application loads fine. but when I try and access www.domain.com/hotsite/section/, it appears to ignore the .htaccess file and tries to access "section" as if it was a folder, returning a 404 error.
Any ideias why this is happening and what should I do to make it work?
Thanks =)

Answer 1

If the htaccess is inside the hotsite folder, then RewriteBase / needs to be RewriteBase /hotsite
Just in case; Note that the rewriterule, rewrites to /folder/index.php, and not /hotsite/folder/index.php