I have a 3.2.1 multisite install with subdirectories. The Blog Templates menu under Settings is displaying in the Network Admin, but not in any of the sub-sites. I have used the plugin without issue numerous times on other multisites, but this is the first with 3.2.1.
EDIT: I have been able to create a Blog Template off of a sub-site by adding that site’s ID in the Blog ID field. The confusing part was the text at the bottom of the Settings screen that states the current blog will be used as a template blog, displaying the url of the main site address.
NOTE: Confusion aside, reading the actual instructions is helpful.