I had the same problem when I tried to use seo url's at first as well. I'm not sure where I figured it out but I found a solution in adding a single line of code at the top of my .htaccess file:
DirectoryIndex index.php?option=com_content&task=blogcategory&id=2&Itemid=18
This basically says that the first page to load when this directory is opened is the content item. And because I had seo turned on in Joomla, that DirectoryIndex command automatically gets re-written as well so you never see the index.php?... part at all. And then the rest of the pages work fine after the initial page is loaded.
So try adding that line and adjust your content id's. It might work for you 
Phil