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It’s very simple as long as you are running WP MU or WP 3.0 and if WP 3.0 you must have manually configured it for Multi site functionality (You don’t say what you’re running on!)
Then you simply need to set the option allow users to register accounts and blogs in main admin options.
See also: WordPress.org • bbPress.org • BuddyPress.org • Matt • Blog RSS