WordPress MU

Scenario:
I have wpmu installed on my root domain in the root level, no folders, using subdomains so when I create a new blog from the root domain I get subdomain.root.com

Problem:
If I am in a created blog 'subdomain.root.com' and go to add a blog, while on the subdomain blog, the new blog is created.

however, the url is subdomain.subdomain.root.com

What code do I change to fix this problem?

Are you running a multi site plugin?