I dunno Toby...just checked and the syntax he's using is exactly what I use on ssi calls
I'm inclined to agree that it's something in your htaccess. Here's the first 3 lines from one of mine...give it a shot Jel...and I'd completely take out the Removehandler...
RewriteEngine on
AddHandler server-parsed .html
Options -Indexes FollowSymLinks Includes