I just uninstalled an old version of a blog and installed WordPress according to instructions for multisite, choosing subdomains for extra blogs. I installed in a subdirectory, according to instructions for WP 3.5 & up, with the blog address in the root directory.
Under Sites, the blog shows up as sitting in the root of the domain.
However the permalinks show up as http://site.com/sample-post/
I thought they should be http://site-com/blog/sample-post/
I should mention that this is the second time I've tried this, having deleted the previous installation because I thought something must be wrong and a clean install would be easier than trying to figure out what was wrong. (So much for that thought!!)
Or have things changed re the permalink structure?