Preview of Background Image Missing After Upload

When I upload an image in Dashboard->Appearence->Background the image seems to upload and additional display options come up after upload but image does not display in Preview box. I have searched the web and this site for solutions but none have worked, most involved changing .htaccess file. I have linux os and this is a new install with multisite enabled according to instuctions. I have checked the files and the images are going under the blogs.dir into what seems to be the correct directories. I looked at the image path that the dashboard preview is trying to display which is: background-image: url(“http://wp1.mydomain.com/files/2011/04/image0017.jpg”); background-repeat: repeat; background-position: left top;
I using 2010 theme, subdomains, have no plugins active and the sites seems to work correctly other than this problem. Many Thanks.