Server errors
 

While studying my stats I noted that 404 page errors amounted to 4.23% of total page requests?

What is an acceptable level of 404 errors?
What can I do to lower that %?
Can I using htaccess redirect 404 traffic? (ie will it cause problems getting listed on certain LL)

Do you know what is causing the 404 errors? Sometimes it is unethical people trying to find an exploit on your server. Sometimes it is a fixable error. I'd suggest looking at your error logs and determine what is going on first.

also, check to see if most of those requests are for favicon.ico

When people bookmark, and when firefox views a page, both attempt to pull favicon.ico.

Majority seems to be favicon. I am more worried about 404 errors causing my links to be pulled.

links unlikely to be pulled unless pages you submitted go 404 |thumb

I think it's even more than 4,23%...

Like people said a 404 could be missing pages (dead links), missing favico file, or incorrect type-in urls. You can fix the first two by checking your logs. For the third you can't stop people from changing a valid www.domain.com/gallery2 to www.domain.com/gallery3 to see if he gets another gallery.