klampl on "Set up multisite subdomain"

Windows Server 2008 R2 IIS 7.5 with rewrite enabled.

I have a install of WordPress in its own folder (wordpress2.ctctel.com) it is redirected by the index.php in the root to its installed folder "blogs".(http://wordpress2.ctctel.com/wp-admin/network/site-info.php?id=1 and http://wordpress2.ctctel.com work. it adds the /blog where it needs to)
The main site works perfect under multisite network.

However when I add a new site webserver2.wordpress2.ctctel.com I cannot get to the dashboard nor visit site option http://wordpress2.ctctel.com/wp-admin/network/site-info.php?id=3 works.
http://webserver2.wordpress2.ctctel.com
gets a 404 error as well as
http://webserver2.wordpress2.ctctel.com/wp-admin/

should not WordPress using the same structure as the main site redirect it to the blogs folder and give it its site id URL?
my .htaccess is:

<IfModule mod_rewrite.c>

RewriteEngine On
RewriteBase /blogs/
RewriteRule ^index\.php$ - [L]

# uploaded files
RewriteRule ^([_0-9a-zA-Z-]+/)?files/(.+) wp-includes/ms-files.php?file=$2 [L]

# add a trailing slash to /wp-admin
RewriteRule ^([_0-9a-zA-Z-]+/)?wp-admin$ $1wp-admin/ [R=301,L]

RewriteCond %{REQUEST_FILENAME} -f [OR]
RewriteCond %{REQUEST_FILENAME} -d
RewriteRule ^ - [L]
RewriteRule  ^([_0-9a-zA-Z-]+/)?(wp-(content|admin|includes).*) $2 [L]
RewriteRule  ^([_0-9a-zA-Z-]+/)?(.*\.php)$ $2 [L]
RewriteRule . index.php [L]
</IfModule>

the index in the root is:

*/
define('WP_USE_THEMES', true);
/** Loads the WordPress Environment and Template */
require( dirname( __FILE__ ) . '/blogs/wp-blog-header.php' );

the wp-config is:

define('WP_DEBUG', true);
/******************************** Multisite Network*/
/*first*/

define( 'WP_ALLOW_MULTISITE', true);
/*start network setup */
$base = dirname(__FILE__) . '/';
define('MULTISITE', true);
define('SUBDOMAIN_INSTALL', true);
/*define('DOMAIN_CURRENT_SITE', 'wordpress2.ctctel.com');*/
define('PATH_CURRENT_SITE', '/');
define('SITE_ID_CURRENT_SITE', 1);
define('BLOG_ID_CURRENT_SITE', 1);
/** Absolute path to the WordPress directory. */
if ( !defined('ABSPATH') )
	define('ABSPATH', dirname(__FILE__) . '/');
define( 'SUNRISE', 'on' );
/** Sets up WordPress vars and included files. */
require_once(ABSPATH . 'wp-settings.php');

any help is greatly appreciated,
KLampl