I don't have time to go through this in detail, but did you do the following...
Point 8 and 9 being the issue you seem to be having..
1) Backup all your files; (I also recommend a database backup, just to be absolutely safe).
2) Apply the mod code changes on copies of your files;
3) Upload all files;
4) CHMOD the phpbb_seo/cache/ folder to 0777;
5) Empty the phpBB/cache/ folder : just delete all files EXCEPTS the .htaccess.
6) Go to yoursite.com/phpBB/phpbb_seo/phpbb_seo_install.php and follow the install instruction
7) Go to phpBB ACP : It's now time to play with settings described bellow;
8 Generate your personalized .htaccess and upload or move it following the instructions;
9) Test a rewritten URL, such as yoursite.com/phpBB/post1.html, if you end up with a 404 (not a phpBB message), go back to step 8;
10) Activate URL rewriting in phpBB ACP and allow yourself some auto-congratulation
tbh - I'd backup your site and restore it to xampp or WAMP to do your testing..