WordPress MU

I have a WP installation where the home page is a page. This works ok. I have also modified the permalink structure to move posts to a "blog" subdirectory.

/blog/%postname%/

This works for single posts, but when i go to http://mysite/blog it get the 404, shouldnt i be getting a list of posts?

Nope.

You have to make a page template called "blog" and put in a mini loop to grab your posts.