Permalink 404 error

I upgraded to 2.8.6 and my sub-folder blog post permalinks are now resulting in a 404 error. Pages are fine but the posts are no longer linking correctly.

Here is a post that will not resolve when a link to it is clicked or copied into the URL:

WPMU can "see" the post and extract its excerpt for use on the home page:

But the link to the post is not working.

I also cannot find how to set or change the permalink structure for sub-folder blogs, where is that located?

Any thoughts?