"The server encountered an internal error..."

[yojoe]

Every step you make has a significant meaning, even the software you use to connect through FTP, and its settings.

Did you check error log on your webhosting account as I asked earlier ?
GS could also dump some info into its own error log, but I'm not sure if it is being created during installation.

I won't guess where, and how are you sending all files.
The only idea I can come up with, is that nested directories may inherit faulty .htaccess settings.
Otherwise you should contact with helpdesk of your webhost, and ask if its not specific hosting related problem.