Ok, I found the solution
In the server error log I was getting:
[Fri May 31 01:37:25 2013] [alert] [client {ip}] /{path}/.htaccess: RewriteRule: bad flag delimiters
When I looked at .htaccess I fount that the line:
# BEGIN W3TC Browser Cache
was appended to the end of a RewriteRule line. I inserted an end of line before the # and the site began working. I was then able to NetworkActivate the plugin and the error did not reoccur.
Jacob Wagner