I think you are dead on with this suggestion. I’ve been trying to do this over the last few days with .htaccess to no avail.
What I did was created a new user “example” then I created the first blog for the user “example” as “exampleblog”. Once that was created I tried to use mod_rewrite to rewrite the url as /username/bog/. It did work using a redirect flag [R], but it didn’t mask the URL like I wanted to.
Is it possible to alter rewrite.php or even bp-core-catchuri.php to rewrite the rule like I need it above with utilizing .htaccess to do it?