The new blog url shows
http://TEXTBOX.http://mydomain.com
Before installing buddypress, this correctly showed
http://TEXTBOX.mydomain.com
I googled a bit and found other sites that appear to have this issue. Example:
http://visualsociety.com/register/
(click the "Yes, I'd like to create a new site" checkbox to see the issue)
A spotcheck shows that the few sites I clicked on that had this problem all had buddypress.