I am not sure when this began. My permalinks on my beta server started breaking. All the links now go to 127.0.0.1/? instead of 127.0.0.1/blog/? . This may have come about around my update to the newest version, but it didn't break my actual server...
Did you try to go multisite with subdomain structure? Because you cannot go subdomain structure when WordPress address (URL)has IP address such as 127.0.0.1.
I am not sure what you mean by "multisite with subdomain structure". I just installed the blog in the /blog directory. It used to work, but changed for some reason... I do access blog info from pages other then what is in the /blog directory though.
Have a look at the settings in settings->general in your admin section - specifically
WordPress address (URL) and Site address (URL).
They both should be 127.0.0.1/blog/ (from what you've described).
Your right, that was the problem, but I never changed that so I didn't think that was the problem... I wounder how it changed...