Currently the MS Robots.txt Manager Plugin doesn’t render the robots.txt file within directories. However, the next release of the plugin renders the robots.txt file within a directory. It should be ready in the next day or two.
Now…. the robots.txt file shouldn’t be in a directory at all. Spiders only read robots.txt files from the root of the Website. This is why WordPress itself, doesn’t render the robots.txt file within directories.
@tribalnerd: Any roadmap for the update? I have the same problem and I’d really like the plugin to work. I’ve got a mapped domain (based on a subfolder network installation) and the robots.txt doesn’t render correctly. If I change the URL in the network admin sitemanager, it does render, but that breaks the WordPress admin interface.