Page URL Problems

Currently, I’ve got a private testing site setup for WordPress 2.7 and am using a static home page. The permalinks are setup as follows:

/articles/%postname%/

That works just fine. I can view the first few posts and any single post. However, when I go to the “older articles” link, it sends me to: /articles/page/2/, which 404s. If I remove the /articles/ so that it reads /page/2/, then the page shows up fine.

Not sure how to resolve it. It feels like a bug, but I could be missing something simple.