new_rewrite and chmod 777

I am very interested in your product, but would like more info in two areas.

Protection Methods
I've been trying out your demo and I'm trying to use new_rewrite

But I get this message:
(RewriteRule doesn't work in .htaccess files on this server)

From some other posts I have seen it looks like there should be a file for this to work. I'm not positive, but it also like this is something that isn't in the demo.
/data/new_rewrite 1.php

I would like to make sure this works on my server though before I purchase as I would need to be able to protect a variety of file types and don't want the .htpasswd pop-up. Is there some way I could confirm this functionality on my server?

Security and chmod 777
Also I was wondering about security issues with leaving the amember and data folders set to chmod 777. I will readily admit to being a newbie on most of that but from what I understand this would leave these folder open to others. Do you have any words of wisdom on this that might ease my security newbie fears?

Thanks