ok, I figured it out. I have one default nginx config that catches all vhosts except the one that is running wp with subdomains (multisite enabled). that one has its own config file.
It all works but I had to copy these rewrites from here for the wildcard subdomain: http://codex.wordpress.org/Installin...rs_HTTP_Server
btw they still mention blogs.php I changed it to reflect ms-sites.php and all is well.
Now what makes me frown and ask myself if I am wasting my time here is that actually all static content that should have been handled by nginx seems to fall back to apache2 because of this rewrite. am I right?
so basically nginx works as a front end proxy for all vhosts except this one which actually is the biggest one on the server? have I just wasted 3 days getting this to work?