Problem solved - an interesting note for anyone installing on 1and1 - there are some great threads here about installing on 1 and 1 but none mention this very important element.
After many calls to support for 1 and 1, here is what finally became the solution;
First, in the setup process I uploaded the zipped Magento file to the host, and unzipped it. This installed the Magento folder to my root dir. Next, I setup my domain with 1 and 1 to point to this Magento dir., then proceeded with the rest of the install. When it came to the Base URL setting, I was able to then (and only then) use my domain as the Base URL.
Previous install attempts (there were several) would only allow me to use http://mydomain.com/magento/ as the Base URL otherwise I would get error messages and the setup would not advance - initially at the suggestion of one support rep., I tried changing the destination of the domain (in their domain settings section of their admin panel) to this Base URL after installing Magento, but for some reason this was causing the server to respond with a 500 server error. Without changing the URL destination I would get the 403 error and I was certain it was because there was no index file in the root directory.
When they finally escalated this to a second tier support and suggested I setup the domain during install I thought they were crazy, but it worked.
Thanks and hope this helps someone else,