Can you type: pwd
And tell me what your current path is?
It either means your working from the wrong path, or that you have a product folder already.
The product folder can't exist, because it's going to become a faked folder.
If you have an empty product folder below your customer directory, delete it, if you need the folder, you'll have to use a different name, like item.
Then substitute "item" for "product" in your URLs.
i.e.
http://www.yourstore.com/item/productid/