Installing and upgrading help

What are you doing installing a very obsolete/unsupported version of Moodle?

Other than that, show us the contents of your .htaccess file. You've got something in there you shouldn't have.

+1 to what Howard said concerning version ... but to answer your question about apache  ...

.htaccess takes it's 'permissions' (so to speak) from the main configuration file for apache ... in the case of a Wonder box I don't know where that is but it's name is either httpd.conf (.cnf) or apache2.conf (.cnf).

In that file there will be definitions for document root and contained in the settings for document root there is a setting for what to allow for overrides.   If you allow Override ALL then other overrides can be placed in .htaccess.   Override ALL for document root is not normally recommended but if on a Wonder machine Wndows 7 am assuming is NOT for production so, think it might be ok IF apache/mysql and thus Moodle access is not turned on as a service to be launched upon boot up automagically (what one doesn't know is running can hurt!).

Changing the config of apache does require restart of apache for the changes to take affect.

http://httpd.apache.org/docs/2.2/mod/core.html

http://httpd.apache.org/docs/2.2/mod/core.html#allowoverride

'spirit of sharing', Ken