WP MU 3.1 Permalinks for Blog Posts

I am running WP MU 3.1.

Each website has its own subdomain. (site1.mydomain.tdl)

Premalinks have been setup to create pretty URLs. (site1.mydomain.tdl/pagetitle)

However, blog posts have the date in the URL:

I would like to change the permalink URL of blog posts to remove the date and include the category:

How can I achieve this?

(Also, I can't seem to find Options-> Permalinks since upgrading to WP 3.1. Has it been moved??)