The wp-content/blogs.php file is deprecated. - If I fix it the uploaded images wouldn't show

Hi All,

After upgrading the Wordpress MU to 3.0.1 I see following warning in Admin
The wp-content/blogs.php file is deprecated. Please remove it and update your server rewrite rules to use wp-includes/ms-files.php instead.

When I fix it, by deleting blog.php and adding the .htaccess rule, the old images are not showing and also any new image uploads are not showing.

Any clue why this doesn't work?

I've tried it on all of my Wordpress MU Blogs and it never works on any of them.