diff --git a/wp-admin/network.php b/wp-admin/network.php
index cf5deb9dc7..e6f951314c 100644
--- a/wp-admin/network.php
+++ b/wp-admin/network.php
@@ -56,11 +56,9 @@ function network_step1() {
 	}
 
 	$hostname = get_clean_basedomain();
-	if ( 'localhost' == $hostname || preg_match( '|[0-9]+\.[0-9]+\.[0-9]+\.[0-9]+|', $hostname ) ) {
+	if ( preg_match( '|[0-9]+\.[0-9]+\.[0-9]+\.[0-9]+|', $hostname ) ) {
 		echo '<p><strong>' . __('You cannot install a network of sites with your server address.' ) . '</strong></p>';
-		echo '<p>' . __('You cannot use an IP address such as <code>127.0.0.1</code> or a single-word hostname like <code>localhost</code>.' ) . '</p>';
-		if ( 'localhost' == $hostname )
-			echo '<p>' . __('Consider using <code>localhost.localdomain</code>.') . '</p>';
+		echo '<p>' . __('You cannot use an IP address such as <code>127.0.0.1</code>.' ) . '</p>';
 		include( './admin-footer.php' );
 		die();
 	}
@@ -93,8 +91,8 @@ function network_step1() {
 		<input type='hidden' name='existing_network' value='0' />
 <?php	} ?>
 		<input type='hidden' name='action' value='step2' />
+<?php	if ( 'localhost' != $hostname ) : ?>
 		<h3><?php esc_html_e( 'Addresses of Sites in your Network' ); ?></h3>
-	
 		<p><?php _e( 'Please choose whether you would like sites in your WordPress network to use sub-domains or sub-directories. <strong>You cannot change this later.</strong>' ); ?></p>
 		<p><?php _e( "You will need a wildcard DNS record if you're going to use the virtual host (sub-domain) functionality." ); ?></p>
 		<?php /* @todo: Link to an MS readme? */ ?>
@@ -113,6 +111,8 @@ function network_step1() {
 		</table>
 
 		<?php
+		endif;
+
 		$is_www = ( substr( $hostname, 0, 4 ) == 'www.' );
 		if ( $is_www ) :
 		?>
@@ -131,6 +131,12 @@ function network_step1() {
 
 		<h3><?php esc_html_e( 'Network Details' ); ?></h3>
 		<table class="form-table">
+		<?php if ( 'localhost' == $hostname ) : ?>
+			<tr>
+				<th scope="row"><?php esc_html_e( 'Sub-directory Install' ); ?></th>
+				<td><?php _e('Because you are using <code>localhost</code>, the sites in your WordPress network must use sub-directories. Consider using <code>localhost.localdomain</code> if you wish to use sub-domains.'); ?></td>
+			</tr>
+		<?php endif; ?>
 		<?php if ( ! $is_www ) : ?>
 			<tr>
 				<th scope='row'><?php esc_html_e( 'Server Address' ); ?></th>
@@ -174,7 +180,7 @@ function network_step2() {
 			<li><p><?php printf( __( 'Add the following to your <code>wp-config.php</code> file in <code>%s</code>:' ), ABSPATH ); ?></p>
 				<textarea class="code" readonly="readonly" cols="100" rows="7">
 define( 'MULTISITE', true );
-define( 'VHOST', '<?php echo 'yes' == stripslashes( $_POST['vhost'] ) ? 'yes' : 'no'; ?>' );
+define( 'VHOST', '<?php echo ( ! empty( $_POST['vhost'] ) && 'yes' == stripslashes( $_POST['vhost'] ) ) ? 'yes' : 'no'; ?>' );
 $base = '<?php echo $base; ?>';
 define( 'DOMAIN_CURRENT_SITE', '<?php echo get_clean_basedomain(); ?>' );
 define( 'PATH_CURRENT_SITE', '<?php echo $base; ?>' );
@@ -257,8 +263,10 @@ switch ( $action ) {
 		require_once( ABSPATH . 'wp-admin/includes/upgrade.php' );
 		// create network tables
 		install_network();
+		$hostname = get_clean_basedomain();
+		$vhost = 'localhost' == $hostname ? false : (bool) $_POST['vhost'];
 		if ( !network_domain_check() || isset( $_POST['existing_network'] ) && $_POST['existing_network'] == '0' )
-			populate_network( 1, get_clean_basedomain(), sanitize_email( $_POST['email'] ), $_POST['weblog_title'], $base, $_POST['vhost'] );
+			populate_network( 1, get_clean_basedomain(), sanitize_email( $_POST['email'] ), $_POST['weblog_title'], $base, $vhost );
 		// create wp-config.php / htaccess
 		network_step2();
 		break;
diff --git a/wp-includes/ms-default-constants.php b/wp-includes/ms-default-constants.php
index d3823af9ae..2447d81d44 100644
--- a/wp-includes/ms-default-constants.php
+++ b/wp-includes/ms-default-constants.php
@@ -61,7 +61,7 @@ function ms_cookie_constants(  ) {
 	/**
 	 * @since 2.0.0
 	 */
-	if ( !defined('COOKIE_DOMAIN') ) {
+	if ( !defined('COOKIE_DOMAIN') && 'localhost' != $current_site->cookie_domain ) {
 		if ( isset( $current_site->cookie_domain ) )
 			define('COOKIE_DOMAIN', '.' . $current_site->cookie_domain);
 		else
diff --git a/wp-includes/ms-load.php b/wp-includes/ms-load.php
index 056c9da04f..a909d8cfd2 100644
--- a/wp-includes/ms-load.php
+++ b/wp-includes/ms-load.php
@@ -182,20 +182,22 @@ function wpmu_current_site() {
  *
  * Used when blog does not exist. Checks for a missing $wpdb->site table as well.
  *
+ * @todo update for 3.0, pare down, and i18n
+ *
  * @access private
  * @since 3.0.0
  */
 function ms_not_installed() {
 	global $wpdb, $domain, $path;
 
-	$msg = '<h1>' . esc_html( 'Fatal Error' ) . '</h1>';
-	$msg  = '<p>' . 'If your site does not display, please contact the owner of this network.' . '</p>';
+	$msg = '<h1>' . 'Fatal Error' . '</h1>';
+	$msg .= '<p>' . 'If your site does not display, please contact the owner of this network.' . '</p>';
 	$msg .= '<p>' . 'If you are the owner of this network please check that MySQL is running properly and all tables are error free.' . '</p>';
 	if ( ! $wpdb->get_var( "SHOW TABLES LIKE '$wpdb->site'" ) )
 		$msg .= '<p>' . sprintf( '<strong>Database tables are missing.</strong> This means that MySQL is not running, WordPress was not installed properly, or someone deleted <code>%s</code>. You really <em>should</em> look at your database now.', $wpdb->site ) . '</p>';
 	else
 		$msg .= '<p>' . sprintf( '<strong>Could Not Find Site!</strong> Searched for table <em>%1$s</em> in <code>%2$s</code>. Is that right?', $domain . $path, DB_NAME, $wpdb->blogs ) . '</p>';
-	$msg .= '<h1>' . esc_html( 'What do I do now?' ) . '</h1>';
+	$msg .= '<h1>' . 'What do I do now?' . '</h1>';
 	// @todo Update WPMU codex link.
 	$msg .= '<p>' . 'Read the <a target="_blank" href="http://codex.wordpress.org/Debugging_WPMU">bug report</a> page. Some of the guidelines there may help you figure out what went wrong.' . '</p>';
 	$msg .= '<p>' . "If you're still stuck with this message, then check that your database contains the following tables:" . '</p><ul>';
@@ -204,14 +206,7 @@ function ms_not_installed() {
 	}
 	$msg .= '</ul>';
 	// @todo Update WPMU codex link and support instructions.
-	$msg = '<p>' . 'If you suspect a problem please report it to the support forums but you must include the information asked for in the <a target="_blank" href="http://codex.wordpress.org/Debugging_WPMU">WPMU bug reporting guidelines</a>! ' . '</p>';
-
-	// @todo This file no longer exists post-merge.
-	if ( is_file( 'release-info.txt' ) ) {
-		$msg .= '<p>' . 'Your bug report must include the following text:' . '</p>';
-		$info = file( 'release-info.txt' );
-		$msg .= $info[ 4 ] . '"';
-	}
+	$msg .= '<p>' . 'If you suspect a problem please report it to the support forums but you must include the information asked for in the <a target="_blank" href="http://codex.wordpress.org/Debugging_WPMU">WPMU bug reporting guidelines</a>! ' . '</p>';
 
 	die( $msg );
 }
diff --git a/wp-includes/ms-settings.php b/wp-includes/ms-settings.php
index 40ad0baaf5..17da0efcd9 100644
--- a/wp-includes/ms-settings.php
+++ b/wp-includes/ms-settings.php
@@ -11,7 +11,7 @@
 
 // $base sanity check.
 if ( 'BASE' == $base )
-	die( 'Configuration error in <code>wp-config.php<code>. <code>$base</code> is set to "BASE" when it should be the path like "/" or "/blogs/".' );
+	die( 'Configuration error in <code>wp-config.php</code>. <code>$base</code> is set to "BASE" when it should be the path like "/" or "/blogs/".' );
 
 /** Include Multisite initialization functions */
 require( ABSPATH . WPINC . '/ms-load.php' );