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I use Bluehost and you’re right, you cannot set up WPMU using subdomains; you must use the subdirectory option. This was fine with me because I was already installing WPMU into a subdirectory and though http://member/wpmu/sitename.com would look funny.
Also, I ran into a few snags while installing onto Bluehost but found some very easy fixes.
See also: WordPress.org • bbPress.org • BuddyPress.org • Matt • Blog RSS