The short version of the question is: "When should I set the value of the VHOST constant to 'yes' and/or 'no'?"
I don't know what it's for. I've spent quite a bit of time trying to track down what it is for already, so now I'm asking you guys, and one of my installations won't run properly unless it's set to 'no', but the other copy (which is a svn'd mirror image) works with it set to 'yes'. When the malfunctioning copy is set to 'yes' it has a "Redirect Loop" error and the url looks like this http://mysite/wp_signup.php?new=mysite
I'll post a comment with what line of code I figured was causing this. It might help determine cause of the settings bug.