I have an answer and a problem. As I understand (and we may find out soon that I don't) you simply need to find the file named "htaccess" in the "lib" subdirectory and copy it to the main moodle directory. Then, you need to rename it ".htaccess" -- the leading dot is important.
I just completed what I've described and now a bunch of code shows up on the pages. Also, the magic_quotes error remains. I tried commenting out the lines in the file that are needed for Apache version 2, but that made no difference. So, I've reached the end of what I can think of to do. Help! The webserver uses Apache 1.3.26 and PHP 4.2.2
Thanks, Worth Swearingen