I wanted to move my blog from http://www.techniti.com/wordpress to http//www.technti.com.blog while keeping wordpress in its own directory. I followed the instructions to a tee bt when the option is set to move the blog to /blog, Iam no longer able to login using any use d. I was able to reproduce the problem multiple times with both IE 6.1 and FF 1.0, both running on WinXP SP2.
The problemwas definitely caused by the option rather than by the actal file location. I logged in simultaneously in IE and FF and then changed the Blog URI to point to /blog in IE. After that, I was not able to login through IE again. I set the change back to the default of WordPress through FF and was able to log back in. Reproduced the problem in the opposite direction as well.
The system works fine when both blog and index.php are in the same directory.