WordPress Intalled on a separate directory and .htaccess redirection

Solution:

The way the WordPress .htaccess file works is if an existing file or directory is requested, it does not send the request through WordPress…that’s what the !-f and !-d RewriteCond statements do.

So, there is something else going on with your site. Have you used Firebug or any other debugging tool to see what is happening with the request/response?

You could always enable mod_rewrite logging to see if that gives you a clue.

<IfModule mod_rewrite.c>
RewriteEngine On

RewriteLog "rewrite.log"
RewriteLogLevel 3

RewriteBase /
RewriteRule ^index\.php$ - [L]
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
RewriteRule . /index.php [L]
</IfModule>

RewriteLogLevel of 5 would give you the most information. Make sure to comment out or remove the RewriteLog* lines when you have figured out the issue.

UPDATE: Check this other SO answer to see if it resolves your issue