I hate to say it but here we go again…
Seems the 404 solution above does not actually work correctly (I warned you that I wasn’t sure it would work).
Anyway I have spent hours researching and testing this and the bottom-line is this:
1. If you put the full url to your custom error page in .htaccess (http://Yourdomain…) then the apache web server basically treats it as a redirect and not a 404 no matter what else you do.
After extensive research, I can not find a way around this. If using an ErrorDocument 404 statement you MUST be in the form of: ErrorDocument 404 /YourCustomErrorPage.xxx or it will be treated like a redirect. The php code at the top Does indeed force a 404 but it is for the error doc not the missing page. It does not work as it was explained to me and as I then explained to you. 
2. I think that something is amiss in the way that RW deals with relative pathing in the generated code.
This is why /YourCustomErrorPage.xxx does not render properly. It can not find all the components of the error page because when setting on the page causing the error the relative links are wrong.
I have tested every RW choice: Relative to DOCROOT, Relative to page, Relative to website. None of them work. They all seem to generate code relative to page no matter what.
3. I chatted with @greg700 (chillidog hosting) and Tried several different things with no luck.
I chatted with @doobox who told me he finally just modified the source code manually for his custom 404 page and replaced all of the relative urls with full url’s.
4. So, I am sorry to say that unless someone else smarter than me can find a way around this problem there is no good way to do a custom error page in RW. (at least that I can find.)
What should you do?
I really don’t know the best answer at this point, the options seem to be:
a. Nothing - let it just redirect
b. Forget the custom error page and do a simple one in Cpannel (probably best option)
c. Use the modrewrite in .htaccess - but that basically does the same as (a)
d. Manually edit your source and replace all the relative url’s
On this site I did as @doobox and modified the custom 404 page replacing all of the revertive links with absolute links and it seems to be working. But this will not work for my other site that is constantly changing because every time I add a page and the navigation changes I would also have to regenerate then re-edit the custom 404 page.
It looks like I will have to admit defeat on this one (for now).
Hopefully @dan or @ben will read this and share some wisdom on how to fix the problem.
EDIT: @Doobok to the rescue! Here is the Solution! - Thank You @Doobox!