Running CodeIgniter from Subfolder on Godaddy

[eluser]yorgo[/eluser]
I've read a bunch of the forums on this subject, but none have seemed to solve my problem.

I have a domain on Godaddy with a simple index.html file at the root displaying a splash page. I have CI installed in a subfolder, from where I would like to run it from.

Folder structure:
/
- index.html
- ci
- index.php (CI's index.php file)
- .htaccess
- ... (the rest of CI's core files/directories)

The contents of my htaccess file:
<IfModule mod_rewrite.c>
RewriteEngine On
RewriteBase /ci
RewriteCond %{REQUEST_URI} ^system.*
RewriteRule ^(.*)$ /index.php?/$1 [L]
RewriteCond %{REQUEST_URI} ^application.*
RewriteRule ^(.*)$ /index.php?/$1 [L]
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
RewriteRule ^(.*)$ /index.php?/$1 [L]
</IfModule>
<IfModule !mod_rewrite.c>
ErrorDocument 404 /index.php
</IfModule>

My config settings:
$config['base_url'] = 'http://www.mydomain.com/ci/';
$config['index_page'] = '';
$config['uri_protocol'] = 'AUTO';

I tried following the path of execution and it seems to be failing in Router.php, when setting the default controller. Router.php has a _validate_request function with parameter $segments. When $segments is set to array("index","index") it fails on the second IF statement, if (file_exists(APPPATH.'controllers/'.$segments[0].EXT)), and continues to the 404 page. The same value for the parameter on my local machine does not fail. When I change the IF statement to uppercase the first letter in $segments[0], so Index instead of index, the IF statement does not fail, but I get an error page saying, "Unable to load your default controller. Please make sure the controller specified in your Routes.php file is valid."

I may be chasing a wild goose here and the problem may just lie in my htaccess file.

Any ideas anyone?

Thanks in advance.