What to change in .htaccess?

Question

I am installing Drupal 7 on a subdomain example.com/exampledev2 and I am running into problems with .htaccess. Meaning when I put the files in the root for the first time I get a 500 Internal Server Error, but if I rename it to .htaccess_off or something I can begin installation. Then when I get to the last step, after filling in the site info and creating a user, I click the continue button and I get a Error 500 Internal Server error. I am assuming this has something to do with having .htaccess no longer working, but I can't turn it on, or I get the error before installation. Any advice on how to change the file so I can use it?

EDIT: This is the .htaccess file that finally worked for me:

# Apache/PHP/Drupal settings:
#

# Protect files and directories from prying eyes.
<FilesMatch "\.(engine|inc|info|install|make|module|profile|test|po|sh|.*sql|theme|tpl(\.php)?|xtmpl)$|^(\..*|Entries.*|Repository|Root|Tag|Template)$">
  Order allow,deny
</FilesMatch>

# Make Drupal handle any 404 errors.
ErrorDocument 404 /index.php

# Various rewrite rules.
<IfModule mod_rewrite.c>
  RewriteEngine on

  # Block access to "hidden" directories whose names begin with a period. This
  # includes directories used by version control systems such as Subversion or
  # Git to store control files. Files whose names begin with a period, as well
  # as the control files used by CVS, are protected by the FilesMatch directive
  # above.
  #
  # NOTE: This only works when mod_rewrite is loaded. Without mod_rewrite, it is
  # not possible to block access to entire directories from .htaccess, because
  # <DirectoryMatch> is not allowed here.
  #
  # If you do not have mod_rewrite installed, you should remove these
  # directories from your webroot or otherwise protect them from being
  # downloaded.
  RewriteRule "(^|/)\." - [F]

  # If your site can be accessed both with and without the 'www.' prefix, you
  # can use one of the following settings to redirect users to your preferred
  # URL, either WITH or WITHOUT the 'www.' prefix. Choose ONLY one option:
  #
  # To redirect all users to access the site WITH the 'www.' prefix,
  # (http://example.com/... will be redirected to http://www.example.com/...)
  # uncomment the following:
  # RewriteCond %{HTTP_HOST} !^www\. [NC]
  # RewriteRule ^ http://www.%{HTTP_HOST}%{REQUEST_URI} [L,R=301]
  #
  # To redirect all users to access the site WITHOUT the 'www.' prefix,
  # (http://www.example.com/... will be redirected to http://example.com/...)
  # uncomment the following:
  # RewriteCond %{HTTP_HOST} ^www\.(.+)$ [NC]
  # RewriteRule ^ http://%1%{REQUEST_URI} [L,R=301]

  # Modify the RewriteBase if you are using Drupal in a subdirectory or in a
  # VirtualDocumentRoot and the rewrite rules are not working properly.
  # For example if your site is at http://example.com/drupal uncomment and
  # modify the following line:
  RewriteBase /mysite
  #
  # If your site is running in a VirtualDocumentRoot at http://example.com/,
  # uncomment the following line:
  # RewriteBase /

  # Pass all requests not referring directly to files in the filesystem to
  # index.php. Clean URLs are handled in drupal_environment_initialize().
  RewriteCond %{REQUEST_FILENAME} !-f
  RewriteCond %{REQUEST_FILENAME} !-d
  RewriteCond %{REQUEST_URI} !=/favicon.ico
  RewriteRule ^ index.php [L]

  # Rules to correctly serve gzip compressed CSS and JS files.
  # Requires both mod_rewrite and mod_headers to be enabled.
  <IfModule mod_headers.c>
  # Serve gzip compressed CSS files if they exist and the client accepts gzip.
  RewriteCond %{HTTP:Accept-encoding} gzip
    RewriteCond %{REQUEST_FILENAME}\.gz -s
    RewriteRule ^(.*)\.css $1\.css\.gz [QSA]

    # Serve gzip compressed JS files if they exist and the client accepts gzip.
    RewriteCond %{HTTP:Accept-encoding} gzip
    RewriteCond %{REQUEST_FILENAME}\.gz -s
    RewriteRule ^(.*)\.js $1\.js\.gz [QSA]

    # Serve correct content types, and prevent mod_deflate double gzip.
    RewriteRule \.css\.gz$ - [T=text/css,E=no-gzip:1]
    RewriteRule \.js\.gz$ - [T=text/javascript,E=no-gzip:1]

    <FilesMatch "(\.js\.gz|\.css\.gz)$">
      # Serve correct encoding type.
      Header set Content-Encoding gzip
      # Force proxies to cache gzipped & non-gzipped css/js files separately.
      Header append Vary Accept-Encoding
    </FilesMatch>
  </IfModule>
</IfModule>

EDIT: I think the problem was not totally the htaccess file. The file did "direct" me to a WSOD page if it wasn't fixed, but I don't think it was the reason that when I got to the end of the install process I got an Error 500 screen. I think this was cause by having incorrect access to the database? During the process of install I may have changed the password, and then not updated it in the install.php process. Anyways I got the site up and working and will give some credit to MPD because it is a good answer.