We were experiencing a problem where if you visit one of our wpmu blogs without the trailing slash - (blogs.example.com/subblog) the the paging features of posts_nav_link would produce funky links like blogs.example.com/subblog/subblog/page/2/ (notice the doubled 'subblog')
Some digging led to:
In link-template.php on line 435 find (wpmu 1.2.1 - not sure about other versions):
$home_root = trailingslashit($home_root);
and change it to
$home_root = untrailingslashit($home_root);
Doing this made it so that this block:
$home_root = parse_url(get_option('home'));
$home_root = $home_root['path'];
$home_root = untrailingslashit($home_root);
$qstr = preg_replace('|^'. $home_root . '|', '', $qstr);
$qstr = preg_replace('|^/+|', '', $qstr);
sets the value of $qstr to the same thing regardless of whether the path in the browser ends with a slash or not.
The old way (with 'trailingslashit') would try to match home_root (blogs.example.com/subblog/) against the path in the browser (blogs.example.com/subblog) which doesn't match and caused some funkiness.
Not sure if this qualifies as a bug or a quick how-to for people experiencing the same problem as us - just wanted to share in case anyone else is trying to figure it out.