Template Editor error when WordPress is installed

I have installed WordPress in a different directory than the blog iteslf. This is a great idea, and keeps everything cleaner than it would otherwise be – Thanks
One small problem that I have found is that the template editing tab now shows the following error at the top of the page:
Editing index.php
Oops, no such file exists! Double check the name and try again, merci.
I think this is where the main template would be shown, but in this case it can’t find it because it is looking in the WordPress folder, not the home directory.