htaccess not working - have tried everything on forum-newbie

[eluser]lollylegs[/eluser]
If I type http://localhost/codeigniter/index.php/welcome I get the welcome page.
If I type http://localhost/codeigniter/welcome I get url cannot be found on this server

This is my .htaccess file which is located in folder with index.php

DirectoryIndex index.php
RewriteEngine on
RewriteCond $1 !^(index\.php|images|css|js|robots\.txt|favicon\.ico)
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
RewriteRule ^(.*)$ ./codeigniter/index.php/$1 [L,QSA]

I have my codeigniter folder in my apache/htdocs folder (I know this is not secure, but that is another problem I will tackle when I solve my .htaccess problem.

The Rewrite module is loaded eg mod_rewrite.so, but because I'm using apache on windows that perhaps I should load a .dll instead.
I also tried to change the directive Allow Override to ALL
but get an internal server configuration error

<Directory "C:/webserver/apache/htdocs">

Options Indexes FollowSymLinks

# It can be "All", "None", or any combination of the keywords:
# Options FileInfo AuthConfig Limit
#
AllowOverride None

#
# Controls who can get stuff from this server.
#
Order allow,deny
Allow from all
</Directory>

I would appreciate any help
Regards Marea
Australia