Index: wp-admin/network.php
===================================================================
--- wp-admin/network.php	(revision 13549)
+++ wp-admin/network.php	(working copy)
@@ -153,11 +153,15 @@
 	$email = get_option( 'admin_email' );
 	$hostname = get_clean_basedomain();
 	$invalid_host = false;
-	if ( 'localhost' == $hostname || preg_match( '|[0-9]+\.[0-9]+\.[0-9]+\.[0-9]+|', $hostname, $match ) )
+	if ( preg_match( '|[0-9]+\.[0-9]+\.[0-9]+\.[0-9]+|', $hostname, $match ) )
 		$invalid_host = true;
+	$localhost = ( 'localhost' == $hostname );
 	if ( substr( $hostname, 0, 4 ) == 'www.' )
 		$nowww = substr( $hostname, 4 );
-
+	$base = stripslashes( dirname( dirname( $_SERVER['SCRIPT_NAME'] ) ) );
+	if ( $base == '/' )
+		$base = '';
+	
 	wp_nonce_field( 'install-network-1' );
 	if ( network_domain_check() ) { ?>
 		<h2><?php esc_html_e( 'Existing Sites' ); ?></h2>
@@ -176,8 +180,8 @@
 		<p><?php _e( '<strong>Note</strong> It looks like <code>mod_rewrite</code> is not installed.' ); ?></p>
 		<?php } ?>
 		<p class="blog-address">
-			<label><input type='radio' name='vhost' value='yes'<?php if ( $rewrite_enabled ) echo ' checked="checked"'; ?> /> <?php _e( 'Sub-domains (like <code>blog1.example.com</code>)' ); ?></label><br />
-			<label><input type='radio' name='vhost' value='no'<?php if ( ! $rewrite_enabled ) echo ' checked="checked"'; ?> /> <?php _e( 'Sub-directories (like <code>example.com/blog1</code>)' ); ?></label>
+			<label><input type='radio' name='vhost' value='yes'<?php checked($rewrite_enabled && !$localhost && !$base, true); if ( $localhost ) echo ' disabled="disabled"'; ?> /> <?php echo sprintf(__( 'Sub-domains (like <code>blog1.%s</code>)' ), $hostname); ?></label><br />
+			<label><input type='radio' name='vhost' value='no'<?php checked($rewrite_enabled && !$localhost && !$base, false); ?> /> <?php echo sprintf(__( 'Sub-directories (like <code>%s/blog1</code>)' ), $hostname . $base); ?></label>
 		</p>
 
 		<h2><?php esc_html_e( 'Server Address' ); ?></h2>
@@ -188,11 +192,12 @@
 			<tr>
 				<th scope='row'><?php esc_html_e( 'Server Address' ); ?></th>
 				<td>
-		<?php if ( !$invalid_host ) { ?>
-					<?php printf( __( 'This will be the Internet address of your site: <strong><em>%s</em></strong>.' ), $hostname ); ?>
+		<?php if ( !$invalid_host ) { ?><code><?php echo home_url(); ?></code>
+					<br />
+					<?php _e( 'This will be the base Internet address of your site.' ); ?>
 					<input type='hidden' name='basedomain' value='<?php echo esc_attr( $hostname ); ?>' />
 		<?php } else { ?>
-					<?php _e( 'Do not use an IP address (like 127.0.0.1) or a single word hostname like <q>localhost</q> as your server address.' ); ?>
+					<?php _e( 'Do not use an IP address (like 127.0.0.1) as your server address.' ); ?>
 		<?php } ?>
 				</td>
 			</tr>