Well this much I can tell you:
After many hours, and loss of many forehead follicles, I was able to actually able to get MU wot run on a microsoft Web Server 2008
could you be a bit more specific about which platform you are using?
I noticed that your url is incorrect (I think) since MU so conveniently throws the directory path /blog/ blog into any url, excuse me, permalink I visit while viewing a post (which is fairly strange since I named the folder/directory to where I place mu 'news')(so much for attempting to make the site url professional looking) anyway, you will need to look at the web server config file (not getting specific here).
I got so frustrated with mine, I simply reimaged the server. I built my we site out (html pages) included a directory called 'news' not 'blog' or any variation of said same (for everyone states this causes mu to have a heart attack if it sees to many 'blog(s)' in the permalink, I don't doubt it) and everything was working okay except, at that time I could not upload avatars (which was just the opposite of what problems I was having).
So there I was back at it, trying to get the privileges straightened out to upload avatars into a folder called /avatar (as per defualt useage) and whammy the entire install crumbled like a stale cookie in a crying babies hand. I mean good lord people.
I gave up, created a separate folder, created another web on a separate IP, and reinstalled MU. I am only having minor video upload problems at this time. I am simply considering standing up a media server for those to use and not worrying about this anymore.
What occurs is, that in the wonders of this "url rewrite" process, the configuration of the web server file becomes so convoluted, that it would take months to straighten it out by hand (at least on a windows box).
So the morale of this story is, place MU all by its' lonesome and hope for the best, DO NOT ALLOW any folders to INHERIT PERMISSIONS FROM ANYWHERE this is hazardous not only to your web server but your mental health as well, (See Surgeon Generals Posting on MU and Mental Health)
Good luck, Andréa is correct, about the permissions, and to point out, on the windows box, this /blogs.dir/ directory (god knows hy they named it that) will appear as a FILE if you have completely kludged the web conf/permissions up, and halt right there thinking that the "sub-directory" is actually a file that it is looking for.
It's pretty much the same thing that happens when users start using two hyphens in a row or an apostrophe or / \ in the title of their article. WordPress whilst creating the permalinks, forming the permalink from the title of the "post" does not treat special characters in a title any differently than they would during directory or file creation.
Unfortunately, now all my listings in Google, etc point to an non-existent "blog" and I am busy sending spiders out to correct this problem as well. The bad thing is that, I had somewhat of an ad campaign going out, using my .com address and now I have MU on my .net address (pouring good money for bad I suppose)
Good Luck