Htaccess problems when coming from a truecrypt container

I was messing with one of my sites' .htaccess files and got it working as desired. Then I was finished working on it so I moved it to my encrypted container (TrueCrypt). Later on I wanted to change some things so was modifying the .htaccess directly from the encrypted container but couldn't get my .htaccess doing what I wanted - I kept getting the 403 Forbidden.

So finally after convincing myself there were no errors in my code, I created a blank .htaccess and uploaded it from my encrypted mount and was still getting the Forbidden. Then finally created an empty .htaccess from a non-encrypted location and boom, it worked and the site responded as expected.

One last thing I did was move the working/empty .htaccess from non-encrypted location to my TrueCrypt mount and after uploading it was breaking again.

My question is what am I missing? Is this expected behaviour? Perhaps a bug? Any insight would be appreciated, thanks.

EDIT: I just tested uploading a different type of file from the encrypted mount (index.html) and as expected it failed as well. So this is less of a .htaccess question and more of a truecrypt / webserver question.