Wordpress multisite installation on a sub-subdomain

Hello.

I have a WP problem and I hope someone can help me.

I just installed a new clean wordpress and then made it into multisite like it is described here: http://codex.wordpress.org/Create_A_Network
The installation is in a sub-subdomain like aaa.bbb.ccc.bg. I mean that this is the domain of the site. It does NOT use the subdomain setting for network sites, it is set to subfolders.

The problem is that all kinds of pages return 404, for example after creating a new site in the network, it cannot be opened (404).

AND, the strange thing is in the screenshot. Somehow wordpress has decided to add /BLOG at the end of the address of the main site even though it is installed in the main folder (you can see the address bar is different from the settings seen in the permalink options)! This has to be related to the problem.

I hope you can help.
Thank you.