cant enable nice urls

What instructions exactly? Are you on a dedicated server or a shared one? If you are in a shared one, are you allowed to use .htaccess? What do you have in your .htaccess so far?

#
# Apache/PHP/Drupal settings:
#

# Protect files and directories from prying eyes.

Order allow,deny

# Don't show directory listings for URLs which map to a directory.
Options -Indexes

# Follow symbolic links in this directory.
Options +FollowSymLinks

# Make Drupal handle any 404 errors.
ErrorDocument 404 /index.php

# Force simple error message for requests for non-existent favicon.ico.

# There is no end quote below, for compatibility with Apache 1.3.
ErrorDocument 404 "The requested file favicon.ico was not found.

# Set the default handler.
DirectoryIndex index.php

# Override PHP settings. More in sites/default/settings.php
# but the following cannot be changed at runtime.

# PHP 4, Apache 1.

php_value magic_quotes_gpc 0
php_value register_globals 0
php_value session.auto_start 0
php_value mbstring.http_input pass
php_value mbstring.http_output pass
php_value mbstring.encoding_translation 0

# PHP 4, Apache 2.

php_value magic_quotes_gpc 0
php_value register_globals 0
php_value session.auto_start 0
php_value mbstring.http_input pass
php_value mbstring.http_output pass
php_value mbstring.encoding_translation 0

# PHP 5, Apache 1 and 2.

php_value magic_quotes_gpc 0
php_value register_globals 0
php_value session.auto_start 0
php_value mbstring.http_input pass
php_value mbstring.http_output pass
php_value mbstring.encoding_translation 0

# Requires mod_expires to be enabled.

# Enable expirations.
ExpiresActive On

# Cache all files for 2 weeks after access (A).
ExpiresDefault A1209600

# Do not cache dynamically generated pages.
ExpiresByType text/html A1

# Various rewrite rules.

RewriteEngine on

# If your site can be accessed both with and without the 'www.' prefix, you
# can use one of the following settings to redirect users to your preferred
# URL, either WITH or WITHOUT the 'www.' prefix. Choose ONLY one option:
#
# To redirect all users to access the site WITH the 'www.' prefix,
# (http://example.com/... will be redirected to http://www.example.com/...)
# adapt and uncomment the following:
# RewriteCond %{HTTP_HOST} ^example\.com$ [NC]
# RewriteRule ^(.*)$ http://www.example.com/$1 [L,R=301]
#
# To redirect all users to access the site WITHOUT the 'www.' prefix,
# (http://www.example.com/... will be redirected to http://example.com/...)
# uncomment and adapt the following:
# RewriteCond %{HTTP_HOST} ^www\.example\.com$ [NC]
# RewriteRule ^(.*)$ http://example.com/$1 [L,R=301]

# Modify the RewriteBase if you are using Drupal in a subdirectory or in a
# VirtualDocumentRoot and the rewrite rules are not working properly.
# For example if your site is at http://example.com/drupal uncomment and
# modify the following line:
this one in htaccess

# RewriteBase /drupal
#
# If your site is running in a VirtualDocumentRoot at http://example.com/,
# uncomment the following line:
# RewriteBase /

# Rewrite URLs of the form 'x' to the form 'index.php?q=x'.
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
RewriteCond %{REQUEST_URI} !=/favicon.ico
RewriteRule ^(.*)$ index.php?q=$1 [L,QSA]

# $Id: .htaccess,v 1.90.2.3 2008/12/10 20:04:08 goba Exp $

instructions on drigg site and my hosting is vps

well there lots of differences with my htaccess file and i'm not an apache expert. What you could do is backup your existing .htaccess file, copy mine and check it it works.; Good luck :)

Error!
Remote server or file not found

can also look here http://drupal.org/node/595614

If you follow instructions it works. So you're not following instructions.
Can you make a normal drupal install's clean url work?