I had this same problem and was able to resolve it using multiple .htaccess files. Put your primary wordpress installs info in the root of your site….
<IfModule mod_rewrite.c>
RewriteEngine On
RewriteBase /directory/
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
RewriteRule . /directory/index.php [L]
</IfModule>
Then in your second wordpress instance (example: /direactory2/) create another .htaccess file and drop in this code….
<IfModule mod_rewrite.c>
RewriteEngine On
RewriteBase /directory2/
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
RewriteRule . /directory2/index.php [L]
</IfModule>
Using this solution I was able to solve my problem and run as many wordpress instances as I wanted.
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