southernmost - 1:47 am on Dec 16, 2011 (gmt 0)
Go into your hosting control panel, then click on the green tab at the top that says settings. Next click on 404 error options in the drop down menu. Then use the custom 404 error page and enter the page you want to use for your error page. Then hit continue and then submit it.
Thats at least how I did it with them to get it to work right. Let me know.
P.S. I use a standard html page with my regular template. No special codes on the page just the standard.
Snickles: this is exactly how I set up my Custom error page.
I just figured out why you got confused. When you do a googlebot fetch for the custom 404 page itself it does return a 200 code, but if you do it for a page that does not exist like I did the first time it returns the proper 404 code.
I'm getting a 200 code when an invalid (non existent) url is requested. I understand that if I directly request my error page, then I get a 200 code and that is proper. But what I see happening is a 200 code when an invalid url is requested. It should be a 404 being served up with the Custom error page.
Here is the "fetch as googlebot" result from Webmaster tools:
HTTP/1.1 200 OK
Last-Modified: Wed, 14 Dec 2011 15:58:30 GMT
Date: Fri, 16 Dec 2011 01:45:02 GMT
As you can see, I'm getting a 200. The url I requested was something like: www.mywebsite.com/something-random-and-nonexistent