multi site files directory not seen - still creates a root files directory

I'm installing a multi site configuration from scratch. 5.2
I'm having trouble getting drupal to see that I *have* created a sites/blah.com/files directory (that is rwxrwxr-x)

It says it is not writable and does not exist and then creates one for me in the drupal root.

I have read http://drupal.org/node/53705 and other posts regarding the files directory, but I dont find anything that seems to help. Can someone point out some threads... or help me out? Many thanks..

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long version of question
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I dont know if it matters, but when installing, I have an empty db table, and I have already filled in the db info and a db prefix in the settings file. When I first go to blah.com, I get stuff that starts with:

Warning: Table 'db163976119.ajtaccess' doesn't exist query: SELECT CASE WHEN status=1 THEN 0 ELSE 1 END FROM ajtaccess WHERE type = 'host' AND LOWER('24.14.91.57') LIKE LOWER(mask) ORDER BY status DESC LIMIT 0, 1 in /homepages/26/d144203734/htdocs/drupalmostmulti/includes/database.mysql.inc on line 172

so I go to blah.com/install.php

then I get "Drupal installation complete
All necessary changes to ./sites/ajtconsultingllc.com/settings.php have been made. It has been set to read-only for security.

Congratulations, Drupal has been successfully installed.

Please review the messages above before continuing on to your new site."

After I go to the new site, I set up the first user, then I go to "administration" and get a warning, and I check the "status report" and I get two issues. 1) cron (easily fixed by manually running cron) and 2) "File system Not writable
The directory files does not exist. You may need to set the correct directory at the file system settings page or change the current directory's permissions so that it is writable."

But when I go the the "file system settings page", I immediately get a green "The directory files has been created."

and when I check my file system... I see that it has created a files directory in the drupal root!!!! and if I upload a file, it goes there and not in the files directory in the sites directory. Not what is recommended and not what I want.