No way to install!

I installed latest WP 2.3.2 yesterday on my server and created folder blog. So my blog should appear under domain https://www.mydomain.com/blog. After entering that domain I got message from WP to conbfigure wp-config file. After trying probably 100 times yesterday both automatically with WP (Domain name, username, domain host etc…) and by changing wp-config file like explained in WP help I am close to giving up the whole thing. I set up MySQL through my host (they claim i set it up correctly).

Errors i receive are following:

When entering information about database name, host, password and username online through WP message I get about 40 warnings (Warning: fopen(../wp-config.php) [function.fopen]: failed to create stream: Permission denied in c:\websites\mysite317\mysite.com\blog\wp-admin\setup-config.php on line 168 then also Warning: fwrite(): supplied argument is not a valid stream resource in c:\websites\mysite317\mysite.com\blog\wp-admin\setup-config.php on line 188 and some 40 of these with different code lines…

If I configure wp-config file through Text editor, I get warning: Warning: Cannot modify header information – headers already sent in c:\websites\mysite317\mysite.com\blog\wp-includes\pluggable.php on line 391
WordPress database error Table ‘wordpress1.wp_options’ doesn’t exist for query SELECT option_value FROM wp_options WHERE option_name = ‘siteurl’

This repeats no matter what i do – delete empty spaces and lines in wp-config file and pluggable.php and setup-config file. I created new database and it doesn’t work.

Please help and sorry for long post!