Looks like a lot of work has been done on multisite when WordPress is installed to its own directory: #19796
However, it doesn't seem to work as intended in WP 3.5-RC1. I've tested numerous times with both subdirectory and subdomain multisite installs, and I can only get subdirectory multisite to work if I put the rewrite rules in a different .htaccess file than specified; I can't get subdomain multisite to work yet.
Here are the steps I've taken to duplicate this issue a number of times: http://pastebin.com/AYpxa61C
These are just the steps I took to test the subdirectory version of multisite WP. I haven't yet gotten subdomain multisite WP to work from within its own directory; regardless of where I put the rewrite rules I run into reauth loops at wp-login.php and can't ever access both site and network admins, and I fear my rewrite knowledge is such that I won't be able to offer too much help in fixing for subdomain multisite.
But I think I've found that the only thing that needs changing for subdirectory multisite WP is for the user to be prompted to put the rewrite rules in the root-level .htaccess file, not the WP install directory .htaccess (if there is one there). Seems like this was meant to be fixed - see comment #38 of the aforementioned trac ticket.