Re: Fatal Error when activating
If you do not have that line in your wp-config file, it means you used an older version. I just checked a new WPMU 2.7.1 download and the wp-config-sample.php file has this additional line in it.
Anyway, this line goes in the section that starts with this comment:
/** The Database Collate type. Don’t change this if in doubt. */
As far as your last question, yes. You will have lots of issues using the BuddyPress themes until BuddyPress is successfully activated.