nvmnd, PROBLEM SOLVED!
there is an incompatibility between litespeed & vbseo's rewrite rules.
...as soon as i disable vbseo, custom 404 pages work as expected.
turns out vbseo has it's own custom 404 page under it's control panel > general options > 404 page.
for anyone reading this: note that in addition to the above, you still still have a custom 404 page setup through litespeed control panel which will be used for all sub-directories.
Last edited by MPI; 11-08-2011 at 02:12 AM..