Thanks Jim!
I believe that you were saying something similar to what g1smd was saying, although your explanation helped me (no offense g1smd).
So the solution turned out to be pretty simple, and the key was getting the Joomla configuration correct. Joomla has a configuration.php file where a live site is set, and I had it set to the joomla directory instead of the root. After changing it to the root, then all I needed in my htaccess was the following to make it work:
RewriteCond %{REQUEST_URI} !^/joomla/
RewriteRule ^(.*)$ /joomla/$1
Could be wrong, but it looks like this takes care of the 'forward' requests that you mentioned in #2 of your response.
I haven't fully tested this yet, but the request to www.riococokids.com works properly. I'll have to test the individual pages to make sure nothing is broken down the line.
For anyone else searching for the same issue, I'll post my final htaccess that I now have at the root:
##
# @version $Id: htaccess.txt 14401 2010-01-26 14:10:00Z louis $
# @package Joomla
# @copyright Copyright (C) 2005 - 2010 Open Source Matters. All rights reserved.
# @license [
gnu.org...] GNU/GPL
# Joomla! is Free Software
##
#####################################################
# READ THIS COMPLETELY IF YOU CHOOSE TO USE THIS FILE
#
# The line just below this section: 'Options +FollowSymLinks' may cause problems
# with some server configurations. It is required for use of mod_rewrite, but may already
# be set by your server administrator in a way that dissallows changing it in
# your .htaccess file. If using it causes your server to error out, comment it out (add # to
# beginning of line), reload your site in your browser and test your sef url's. If they work,
# it has been set by your server administrator and you do not need it set here.
#
#####################################################
## Can be commented out if causes errors, see notes above.
Options +FollowSymLinks
#mod_rewrite in use
RewriteEngine On
# Rule for directing all to www : [
domain.com...] vs domain.com
RewriteCond %{HTTP_HOST} ^riococokids.com [NC]
RewriteRule (.*) [
riococokids.com...] [R=301,L,NC]
RewriteCond %{REQUEST_URI} !^/joomla/
RewriteRule ^(.*)$ /joomla/$1
########## Begin - Rewrite rules to block out some common exploits
## If you experience problems on your site block out the operations listed below
## This attempts to block the most common type of exploit `attempts` to Joomla!
#
## Deny access to extension xml files (uncomment out to activate)
#<Files ~ "\.xml$">
#Order allow,deny
#Deny from all
#Satisfy all
#</Files>
## End of deny access to extension xml files
RewriteCond %{QUERY_STRING} mosConfig_[a-zA-Z_]{1,21}(=|\%3D) [OR]
# Block out any script trying to base64_encode crap to send via URL
RewriteCond %{QUERY_STRING} base64_encode.*\(.*\) [OR]
# Block out any script that includes a <script> tag in URL
RewriteCond %{QUERY_STRING} (\<|%3C).*script.*(\>|%3E) [NC,OR]
# Block out any script trying to set a PHP GLOBALS variable via URL
RewriteCond %{QUERY_STRING} GLOBALS(=|\[|\%[0-9A-Z]{0,2}) [OR]
# Block out any script trying to modify a _REQUEST variable via URL
RewriteCond %{QUERY_STRING} _REQUEST(=|\[|\%[0-9A-Z]{0,2})
# Send all blocked request to homepage with 403 Forbidden error!
RewriteRule ^(.*)$ index.php [F,L]
#
########## End - Rewrite rules to block out some common exploits
# Uncomment following line if your webserver's URL
# is not directly related to physical file paths.
# Update Your Joomla! Directory (just / for root)
RewriteBase /
########## Begin - Joomla! core SEF Section
#
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
RewriteCond %{REQUEST_URI} !^/index.php
RewriteCond %{REQUEST_URI} (/|\.php|\.html|\.htm|\.feed|\.pdf|\.raw|/[^.]*)$ [NC]
RewriteRule (.*) index.php
RewriteRule .* - [E=HTTP_AUTHORIZATION:%{HTTP:Authorization},L]
#
########## End - Joomla! core SEF Section