The premod is a full install, and so are the updates, no need to do anything more, unless you have some other mods installed which may require some separate update.
Do you see the forum/ script path somewhere in the .htaccess (you should), if not generate a new one and make sure you place it exactly where the red message tells you to.
Two option, either you are generating an .htaccess meant to be used in /forum and thus only mentions it once in the rewritebase, or you did edit the db directly and did not clear phpBB's cache. Of course, these two options stands if you did some how use /forum as your script path.
You must have done something wrong, double check you upgrade procedure, and if not enough, use winmerge to compare you files with the premod's one, should be easy enough to find the glitch.
You must be talking about magic seo url, so yes we did follow a very different way of doing things, this thread is not up to date (since we introduced many goodies since then, like sql rewriting), but it's still worth reading : Magic SEO URL for phpBB3 - Real comparison I'm not saying that our solut...
I guess you are installing with automod, and that copying all files from the root/ directory of the mod's archive to your phpBB root will finalize the install.