This is rather odd. Why do you want drupal in a subfolder when you are not going to use the root folder anyways? Why not just remove the subdirectory and install Drupal in your top directory? ===============================================
I have a similar problem and the reason is that our ISP provides administrative features like stats, spam control etc with the url using www.mydomain.co.uk/admin which conflicts with Drupal admin feature and I have not been able to find any way to change it in Drupal.
Havn't found a way round it yet!
Rob