I'm new to this finding bugs, so please go easy on me if I was meant to submit a bug report somewhere else.
I set myself up a blog again with 1.2.1, but as it was missing the xmlrpc file I just figured i'd go straight to the latest nightly build, 1.3a5.
When I tried to use a blogging client (w.bloggar) however, I couldn't make it work. In my error log I was getting a bunch of fopen errors, couldn't find the file and whatnot.
The problem was in line 287 and 288 of xmlrpc.php, setting the filename variable. As it sets the variable based off the web path, it gets thrown off when userdirs are used, as their local path is often not represented in the url.
I changed those two lines to:
$filename = ABSPATH . get_settings('blogfilename');
and it seemed to work.
I'm not a coder, I just had a look at other parts and put that together. If there is a reason for doing it the way it is currently done, then I guess i'll just have to live with it.
I hope this helps.