Does Wordpress MU not allow domain mapping to subdirectories, such as example.com/blog?
Wordpress.com doesn't allow this.
I couldn't find an option to do this in WordPress MU Domain Mapping plugin.
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Domain mapping works for both subdomains and subfolders (AKA subdirectories). It used to not be available for subfolder installs via the WordPress MU Domain Mapping plugin, but that's no longer the case for a long time. With that being said, it's for a self-hosted blog (WordPress.org install) and not for WordPress.com.