Inline $arg in url not working

Hi, I'm trying to display a list of nodes with a particular taxonomy term using inline url arguments. From what I gather in the provided documentation if I want to have the argument to be in the middle of the url I would need to fudge the url to something like "taxonomy/$arg/display" where $arg is the taxonomy term id.

Using Drupal 5.0 rc1 & Views 5.x-1.4-2rc1, I don't seem to be able to get this to work. It returns with a 404 page not found error. Removing the $arg in the url (i.e. "taxonomy/display") and just appending the term at the end of it gives a usable output so I know that the views page I have set up is workable.

I don't know how to get debug output for you but attached are two gif files containing the output from my devel.module queries which might help you. Looks like the url is not recognised as a views page. Am I doing something wrong here or is it a bug? This issue might be related to this other one. http://drupal.org/node/104854

Path module is disabled
Cache is on. Not aggressive caching.
Cache has been flushed.

Thanks.

  $view = new stdClass();
  $view->name = 'nav_test';
  $view->description = 'Navigation for website';
  $view->access = array (
  0 => '1',
  1 => '2',
  2 => '3',
  3 => '4',
);
  $view->view_args_php = '';
  $view->page = TRUE;
  $view->page_title = '';
  $view->page_header = '';
  $view->page_header_format = '3';
  $view->page_footer = '';
  $view->page_footer_format = '3';
  $view->page_empty = '';
  $view->page_empty_format = '3';
  $view->page_type = 'table';
  $view->url = 'taxonomy/$arg/display';
  $view->use_pager = TRUE;
  $view->nodes_per_page = '10';
  $view->sort = array (
  );
  $view->argument = array (
    array (
      'type' => 'taxid',
      'argdefault' => '2',
      'title' => '%1',
      'options' => '0',
      'wildcard' => '',
      'wildcard_substitution' => '',
    ),
  );
  $view->field = array (
    array (
      'tablename' => 'node',
      'field' => 'title',
      'label' => 'Title',
      'handler' => 'views_handler_field_nodelink_with_mark',
      'sortable' => '1',
      'options' => 'link',
    ),
    array (
      'tablename' => 'node_data_field_introduction',
      'field' => 'field_introduction_value',
      'label' => 'Description',
      'options' => 'trimmed',
    ),
    array (
      'tablename' => 'term_node_2',
      'field' => 'name',
      'label' => 'System',
      'options' => 'nolink',
    ),
    array (
      'tablename' => 'term_node_3',
      'field' => 'name',
      'label' => 'Level of difficulty',
      'options' => 'nolink',
    ),
  );
  $view->filter = array (
    array (
      'tablename' => 'node',
      'field' => 'type',
      'operator' => 'OR',
      'options' => '',
      'value' => array (
  0 => 'problem_based_tutorial',
),
    ),
    array (
      'tablename' => 'node',
      'field' => 'distinct',
      'operator' => '=',
      'options' => '',
      'value' => array (
),
    ),
    array (
      'tablename' => 'node',
      'field' => 'status',
      'operator' => '=',
      'options' => '',
      'value' => '1',
    ),
    array (
      'tablename' => 'term_node_3',
      'field' => 'tid',
      'operator' => 'OR',
      'options' => '',
      'value' => array (
  0 => '13',
  1 => '14',
  2 => '15',
),
    ),
  );
  $view->exposed_filter = array (
  );
  $view->requires = array(node, node_data_field_introduction, term_node_2, term_node_3);
  $views[$view->name] = $view;