Judging by the amount of activity at http://drupal.org/node/144643 this is common issue for Drupalers.
There are a lot of good reasons to run Drupal in a directory other than root and it has certainly saved me a lot of headaches when clients have asked for something else installed alongside Drupal on the same host and makes staged upgrades a snap.
The process is remarkably simple with a little .htaccess magic.
Assuming you installed Drupal in a sub-directory of your webroot called drupal your root directory .htaccess should look like this: