Login does endless redirect

Hey all,
I’ve been plagued by a quirk that I can’t seem to figure out in WP 2.7 and haven’t found the answer to in the forums.

Here’s the deal:
I have a WP site installed in a subfolder (mydomain.com/WPfolder) but have my domain (mydomain.com) using the WPfolder as it’s root.
I can login successfully if I go to mydomain.com/wp-login.php, but if I go to mydomain.com/wp-admin, it immediately redirects to:
http://www.mydomain.com/wp-login.php?redirect_to=http%3A%2F%2Fwww.mydomain.com%2FWPfolder%2Fwp-admin%2F
and I can’t login.
I know it’s not cookies, I’ve checked the siteurl in the Database and everything is fine.

I would appreciate some help.
Thanks!