Front 'page not found' errors after clean install

Drupal 7.12
Mysql: 5.0.92-community-log
PHP: 5.3.10
Litespeed
Linux

Front page 'The requested page "/~sitename/" could not be found' problem with fresh Drupal 7.12 install. I typically build and access development Drupal 6 sites using temp URL i.e. http://xxx.xxx.xxx.xxx/~sitename and have had no problems. With D7 it seems as if the '$base_url = 'http://xxx.xxx.xxx.xxx/~sitename';' in settings.php is not being used. I have confirmed that server is using .htaccess but am at a loss as to what is causing the page not found problem.

Have recreated issue on different servers with same exact problem. To recreate install a clean, vanilla D7 site, set $base_url in settings.php to “http://xxx.xxx.xxx.xxx/~sitename”, create node/1, assign node/1 as default homepage in admin/config/site info, and I get page not found error at site root URL. Node/1 is available directly through URL with no errors but going to / will not display node/1 as front page. If I create a site using same steps in D6 it works correctly.

http://xxx.xxx.xxx.xxx/~sitename/ (error message: The requested page "/~sitename/" could not be found.)
http://xxx.xxx.xxx.xxx/~sitename/index.php (node/1 displayed as default page)
http://xxx.xxx.xxx.xxx/~sitename/node/1 (node/1 displayed)

Any suggestions?

Thanks,
Doug