Multiple drupals with one code base...can't seem to get it to work

I've run a single install of Drupal since 4.6.x release and have been quite happy with it. Now at work they are looking into social software (specifically multiple blogs) and I suggested they use Drupal. Based on their needs we would be looking at multiple installs.

I've set up a basic 5.0 install to show the people who make the descisions the basics and informed them that we could do "sub" installs. I wa sthen tasked to set up the test version to have multiple sub versions.

The web server that has the test version (and the one that will be live) will have drupal as one of the sites hosted. The url is along the lines of : http://server.our.internal.domain/drupal.

I'm trying to get http://server.our.internal.domain/drupal/test1 to work. I've tried everything i can think off (including trying virtual servers in Apache, something we can't do for the live version) but so far the furthest I've come is a Drupal error page ("page not found"). I assume the page not found means that the url re-writing is working to an extent.

What I've done so far:
In the "sites" directory I now have 4 sub directories:
default
all
server.our.internaldomain
server.our.internaldomain.test1

Both the server.our.internal.domain* direcotries only have a settings.php (copied from default)

server.our.internaldomain settings.php (main changes):
$db_url = 'mysql://drupaldb:drupalpw@localhost/drupal';
$db_prefix = 'drupal_';

$base_url = 'http://server.our.internaldomain/drupal'; // NO trailing slash!

server.our.internaldomain.test1 settings.php (main changes):
$db_url = 'mysql://drupaldb:drupalpw@localhost/drupal';
//$db_prefix = 'drupal_';
$db_prefix = array(
'default' => 'center1_',
'users' => 'drupal_',
'sessions' => 'drupal_',
);

$base_url = 'http://server.our.internaldomain/drupal/test1'; // NO trailing slash!

.htaccess in /drupal:
RewriteBase /drupal

# Rewrite old-style URLs of the form 'node.php?id=x'.
#RewriteCond %{REQUEST_FILENAME} !-f
#RewriteCond %{REQUEST_FILENAME} !-d
#RewriteCond %{QUERY_STRING} ^id=([^&]+)$
#RewriteRule node.php index.php?q=node/view/%1 [L]

# Rewrite old-style URLs of the form 'module.php?mod=x'.
#RewriteCond %{REQUEST_FILENAME} !-f
#RewriteCond %{REQUEST_FILENAME} !-d
#RewriteCond %{QUERY_STRING} ^mod=([^&]+)$
#RewriteRule module.php index.php?q=%1 [L]

# Rewrite current-style URLs of the form 'index.php?q=x'.
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
RewriteRule ^(.*)$ index.php?q=$1 [L,QSA]

Anyone have any suggestions?

thanx