I threw it into the <directory> it accepted the actual Rewrite rules and Rewrite on, but I had some rewrite log configurations and log level and it said they can't be there. and needless to say it did nt work.
I've always been told that putting it in the server conf is way more efficient, and also that .htaccess files are more error prone but I'm totally OK with using .htaccess on the dev box. For me it is much of a muchness. I own the colo server where there are virtuals, and the dev box where there arent.