I just set up two blogs. One is in a "wordpress" directory off my root directory and works fine - http://www.p5hq.com/
I used the instructions for "Giving WordPress its Own Directory While Leaving Your Blog in the Root Directory".
The other, problematic blog runs off a different database on the same server, and is also in its own directory, "raidertopia" - http://www.p5hq.com/raidertopia/
The Raidertopia blog refuses to display theme images for some reason. Even the admin login screen will not display the wordpress background image. Add to that - no images in admin control panel "presentation" page of available themes and default Kubrick theme's header image cannot be colorized.
Otherwise, functionality of blog (posting, commenting) is good.
Any help will be appreciated.