I had the same problems and ended up rolling back to the version I was on before, 3.2.1. I’m not sure what the deal was because I had full privileges. I think it has something to do with the new uploader code in this release.
Thanks for the response.
I have tried that as well as putting a set of rewrite rules in the .htaccess in the subdirectory that basically points everything to the subdirectory’s index.php and neither has worked.
Could you be more specific? This is a WordPress 3.0.1 Network set up with about 15 sites run in sub-directory mode.