Just hit the same problem, thanks for the posts they fixed it. I agree with pacifican, it would make more sense to default it to the web root dir during installation.
I just had and fixed an identical problem with Fedora FC4. If your server is running selinux, and you moved the files into the apache directory, you may have hit a bug with how selinux tracks file permissions. See:
http://www.issociate.de/board/post/182411/Sub_directories_forbidden.html
What made me suspicious was I could not access /blog/readme.html, but the same file with the same permissions worked from /
My fix was simple: I disabled selinux. Reboot
