Lost blog files

Hi
I have a new install of a blog and I updated the theme a couple of weeks ago. everything looks good and seemed to work fine. The blog is in http://www.mydomain.com/blog
At the moment I have all of my postings in the main page which shows the most recent 10 postings. When I click on any of the posts I do not go to that post but rather to a copy of the index on the root directory. In the bottom bar of the browser I can see that my location is now in http://www.mydomain.com/blog/blog-category.
I have gone thru the website and looked for the blog postings but cannot find them even though they are there.
What is the setting in the admin section that dictates where the blog files should be located and how the are marked for that location so I can follow them.
Thanks in advance