Okay let's say you need to do this
RewriteRule ^(.*)\.jpg$ /images/$1\.jpg
So you still have the two WordPress directories, right?
But you want to rewrite the picture files that are phisically in the images dir to come like this.
This is a virtual rewrite so you get 200 ok.
The actual file is in the /images/
That is why you need the condition not to rewite your /blogtest/ otherwise the WordPress instalation rewrite will not work.
There are many reasons to have rewrites in the top dir and sub branches besides the WorPress dir.
Cononical duplication is a very important reason.
Remeber when you have the blog instaled in a sub directory, proper instalation, you still have to deal with home dir root! That is why the condition to exclude the WordPress dir, because of its rewrite!
[edited by: encyclo at 1:57 am (utc) on Dec. 23, 2007]
[edit reason] no links to personal sites please [/edit]