Multisite Frustration!!!

To get this straight, you have installed WordPress within a sub-folder named “blog” within the root of your domain? It’s been there a year and now you have recently enabled multisite and added a second site which resides in “subfolder” and you cannot access it?

Is this the latest version of WordPress (3.5.1)? Are you sure all plugins are disabled. If they are network enabled, they are going to be active on all sites. By default, the default theme (Twenty Twelve or Twenty Eleven) will be enabled. Did you happen to deactivate the default theme?

You may want to start over, either delete the new site and add it again or add a third site. Carefully confirm each step long the way. Do it with all plugins disabled and using the default theme. Change one variable at a time and preview the site at each step along the way. If that fails, enable debug and browse the error logs for clues. Good luck.

How are you trying to access the dashboard of the sub-site? Via the ../my-newsite/wp-admin url? Try to see if you can access it via the backend, via the network admin menus.

Do you have a redirect plugin installed? Have you made any edits to your .htaccess file?
Here is what the default multisite .htaccess looks like:

# BEGIN WordPress
RewriteEngine On
RewriteBase /worship/
RewriteRule ^index\.php$ - [L]

# uploaded files
RewriteRule ^([_0-9a-zA-Z-]+/)?files/(.+) wp-includes/ms-files.php?file=$2 [L]
# add a trailing slash to /wp-admin
RewriteRule ^([_0-9a-zA-Z-]+/)?wp-admin$ $1wp-admin/ [R=301,L]

RewriteCond %{REQUEST_FILENAME} -f [OR]
RewriteCond %{REQUEST_FILENAME} -d
RewriteRule ^ - [L]
RewriteRule  ^[_0-9a-zA-Z-]+/(wp-(content|admin|includes).*) $1 [L]
RewriteRule  ^[_0-9a-zA-Z-]+/(.*\.php)$ $1 [L]
RewriteRule . index.php [L]
# END WordPress

Yours may include additional rules if you have installed a caching plugin like W3 Total Cache or SuperCache.

Yes, of course there is no .htaccess file on a Windows server and there is your problem. Fortunately there is a resolution. This is all the same problem as this other topic: http://wordpress.org/support/topic/subdirectory-multisite-install?replies=5&message=closed

If you’re using IIS and don’t have apache and mod-rewrite, you need to modify your web.config file.

See http://wordpress.org/support/topic/iis-75-multisite-subdirectory-webconfig-rewrite-rules?replies=10

and http://wordpress.org/support/topic/multisite-install?replies=4#post-2198998

IMHO, WordPress works best on on a LAMP stack (Linux, Apache, MySQL and PHP), so I personally avoid Windows servers if I can. Linux is simply less expensive, more secure, better performing, and easier.