I am glad someone came from this thread to my blog, I saw in my logs, because I was looking for this thread to change what I said before.
It is better to leave the blog/ in your database entry for the home blog and the permalink setting.
I ended up doing something else to solve my problem. I had to change code in the core of wpmu to suit my needs. Through searches I was told where the program was going to send people to the login, and I changed that code to simply add an index.php to the url if the url had my base folder name and tag in it.
For example if your blogs are in a folder called awesomeblogs, then I had to do an if statement to test if the domain and folder name had
awesomeblogs/tag in it, and then insert the index.php into it, so that on only the home blog, the tag url would be fixed. I also had to set simpletagging to put in a trailing slash.
I hope this helps someone.
nada
I mentioned the fix here also
http://mu.wordpress.org/forums/topic.php?id=3672&page&replies=15