Sounds like either your hosting service has not got the vhosts file set up with a wildcard for subdomains, or they have disabled it - squirt them a support ticket to check, because if either of those are true, doesn't matter what you do, you ain't gonna get subdomain sub-blogs running.
In the SuperAdmin sites list, it is possible to setup a new site, and to have wildcard subdomains in DNS, but if the Apache server httpd.conf and/or vhosts.conf is not set up, you ain't ever gonna see those additional sites you create in SuperAdmin.
Symptoms of that include -
- Not being offered ability to add site when registering as new user
- viewing sub-site or backend from in home site admin dumps you at main site home page
- In DNS manager - having to hack in an A record with IP address to set up your wild card domain, instead of just being allowed to add a * subdomain name in the add subdomain panel
Go on - ask me how I know those things - I found out the hard way on a long and twisted path to insanity ;)