Installation problem

[eluser]haydenchambers[/eluser]
from a fresh install of 1.7.1
I have this structure

www.example.com/ci/
index.php
licence.txt
system/
application/
...
...

and I also had the above error

but changing line 95 of index.php to define('APPPATH', 'system/'.$application_folder.'/');
seemed to fix it? Though it makes me nervous. Is there something I'm doing wrong in the setup that means it would work doing that hack? Will it 'just work for now' and further down the track I'll run into some ugly bug?

Thanks in advance