WP in subdirectory gives page not found error

Hi, I am having some strange things with the newly installed wp 3.2.1 in a subdirecoty of my domain. Following the codex, I moved the index.php and .htaccess to the root directory (public_html) and modified the index.php accordingly. Now, if I type in the url of my domain, the wp works just fine; however if I type in the subdirectory, such as mydomain.com/wp or mydomain.com/wp/index.php, it simply gives a 404 page not found error.

I checked mysql database, the urlsite in the wp_option table showed “mydomain.com/wp” rather than “mydomain.com”, I am wondering if this is right? If I change the urlsite to “mydomain.com” under phpmyadmin, the website just shows a text page as if there is no theme installed

This is my .htaccess file under root directory

# BEGIN WordPress
<IfModule mod_rewrite.c>
RewriteEngine On
RewriteBase /
RewriteRule ^index\.php$ - [L]
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
RewriteRule . /index.php [L]
</IfModule>

# END WordPress

and this is the .htaccess file in the subdirectory

# BEGIN WordPress
<IfModule mod_rewrite.c>
RewriteEngine On
RewriteBase /wp/
RewriteRule ^index\.php$ - [L]
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
RewriteRule . /wp/index.php [L]
</IfModule>

# END WordPress

I am new with WP, please help me. Thanks