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I had to get my head around this for WP standard work recently, and thought I would combine it with some WP-MU experimentation.
Current release (at time of writing) WP-MU 2.6.5
Page on WP Codex on setting up WP with Subversion (not MU specific, but you can usually add ‘-mu’ on the end of WP 🙂
So if your host, like mine, supports SVN , navigate to your chosen directory and create a subdirectory if you want one:
mkdir blog
cd blog

svn co .

EDIT: Don’t install WP-MU in a subdirectory!
The space AND dot is VERY important (I did forget it a few times while trying this out)
Create new database on Dreamhost (or whatever host you use):
Make a note of the details and proceed with a standard install procedure or edit your wp-config.php if you would rather.
Updating WP-MU to run off a later tag
svn sw .
or off ‘trunk’ (not recommended for production environments)
svn sw .
This will replace all files that were associated with the tagged files from the repository (in our example, from 2.6.5) to the newer version, in this case 2.7 (at the time of writing WP 2.7 is out but not WP-MU 2.7).
Easy peasy!