Not so much an installation problem as a question. The changelog for 1.2 mentions the following:
Directory flexbility: Now you can have all the WordPress files in one directory and the weblog in a higher level directory.
I like to keep all my Scripts in a /Scripts/<Scriptname> directory (so two steps under root), and I was planning a number of different weblogs, one which would be directly under root, a few which would be in a directory one step under root and one which would be in another subdirectory two steps under root (and thus level with the WP install, only in another directory).
Would this work or is a higher directory required for the weblog?