invalid activation code

I added a storyteller to a site that uses the files in a directory called /site/ within the root directory.

Thus in the config we show it as the
domainname.com
domainname.com/site/
I have also tried it as domainname.com/site with no closing slash

In both cases: a new registration a) thanks you and tells you to check your email; b) sends the mail
The validation code in every case adds /site/ to the end of the activation code.
When you click it here is what happens:

domainname.com
No such page found because the site is not including the /site/ directory thus it can't find the /activate.php/ file.

thus in config I added the /site/ to the main address
domainname.com/site/
This errors now with "invalid activation code"

I have also tried it as domainname.com/site with no closing slash
this also errors

I cleared the cache and tried again only to continue get the same error.
What seems to be the problem? How can I make the site registration work?