On http://kellyalexandershow.com we are using the shoutbox theme. On the front page we are displaying both 'posts' and 'episodes' (a custom post type) which I implemented by placing the following line in index.php, replacing the original setup for a new query:
$avia_config['new_query'] = array( "post_type" => 'episode'+'post', "paged" => get_query_var( 'paged' ), "posts_per_page"=> $postcount, "tag" => 'homepage');
As expected, this pulls up several (10 or more) pages of posts from the two post types. Going to page two produces the next page. Going to page 3 or any higher page produces 404.
Both the Podcasts page, which shows 'episodes', and the Blog page, which shows 'posts', work fine for all pages. I created a template for the podcasts, based on the blog template.
I have tried the plain default permalinks, our preference which is category/post, and simple post name, and they all produce the same result. I also tried plugging a page number into the query setup, instead of "paged" => get_query_var( 'paged' ) I tried paged" => '3', and that pulled up the appropriate set of posts and made the right page number show at the bottom. So the issue seems to be that 'paged' isn't getting set properly before my code in index.php is invoked...I think.
Thanks for this interesting theme; I've had to learn a bit more than I wanted to about how it works though ;)