I'm sure this is a stupid question, but I'm setting up a new installation and for whatever reason it's defaulting to use subdomains when I want subdirectories. I've looked all through wp-config.php, readme.txt and http://codex.wordpress.org/Installing_WordPress and have searched the forums but nothing seems to tell me how to just set this one simple setting (presumably because it's so simple).
To be clear - even though you are selecting 'subdirectories' when you are installing WPMU for the first time, it is establishing new blogs afterward as subdomains?
On the initial install page, there's two radio buttons. Subdomains is set by default. you have to select the other one.
it's kind of buried in a lot of text.
(and if you botch the database info and get a connection error, when you go back to fix, you have to remember that it's subdomains by default... have had that happen before!) ;)