Is Apache's Document Root still set to /Library/WebServer/Documents? If I understand it correctly, httpd.conf's mod_rewrite settings will only apply to Apache's document root. If you want it applied elsewhere, you have to tell it specifically. In OSX Client, this means the user.conf, in OSX Server this means the site.conf.
I usually just place my websites in /Library/WebServer/Documents, and symlink the site's directory into the corresponding project's folder located elsewhere.