I guess the error message says it! 500 is internal server error. Your server logs will give more info about the error.
[Tue Mar 04 13:42:36 2008] [notice] Server built: Sep 21 2007 00:29:38 [Tue Mar 04 13:42:36 2008] [notice] Parent: Created child process 3060 [Tue Mar 04 13:42:39 2008] [notice] Child 3060: Child process is running [Tue Mar 04 13:42:39 2008] [notice] Child 3060: Acquired the start mutex. [Tue Mar 04 13:42:39 2008] [notice] Child 3060: Starting 250 worker threads. [Tue Mar 04 13:42:39 2008] [notice] Child 3060: Starting thread to listen on port 443. [Tue Mar 04 13:42:39 2008] [notice] Child 3060: Starting thread to listen on port 80. [Tue Mar 04 13:42:50 2008] [alert] [client 127.0.0.1] D:/xampp/htdocs/m2watch/.htaccess: Invalid command 'RewriteEngine', perhaps misspelled or defined by a module not included in the server configuration
Your mod rewrite line isn't correct. Check it in the .htaccess in what appears to be the folder /m2watch. Either remove it or correct it.