if i had any idea what i actually did to get it working, i would most definitely share. basically i went through a lot of trial and error to see what worked and what didn't, what needed to be changed and what could be left alone. at one point i even messed something up enough that wordpress tried to divide by zero. oops! fixed that one right away.
halfway through i ended up making my own variable in the config file called "truesite," i think, that had the real url to my blog and left the "siteurl" variable to be the url for wordpress. ie:
truesite - http://mydomain.com/blog
siteurl - http://mydomain.com/blog/wordpress
whether or not this was a smart idea is questionable, but it did work and it did make things easier for me, simply by using the truesite variable where i needed to reference the blog's index.php. just to clarify, this probably was not the greatest idea in the world and i don't really recommend it to anyone else, unless you know what you're doing and think it's actually a good idea. i have very little experience with php other than b2 and now wordpress, so i was just using bits and pieces of what i know of programming to pull this off.
i ended up changing a few things in a couple files; if i had any idea which ones they were, i would share. (i'm currently at work, taking a quick break.) really, i htink the best route would be for wordpress to be designed for installation in a subfolder from the beginning, instead of requiring hacks to make it work. the only reason i kept working at it and ended up at the solution i did was because i was quite determined to make it work any way i could, no matter how long the answer eluded me.
my apologies, this is getting long. to get to the point: i don't know how i did it, only that it works. trial and error was my main method. hopefully in the future wordpress will be structured differently to allow for an easy subfolder configuration.