WP was installed in /blog/ many years ago and I adjusted it to work via the root following WP's instructions (cf. http://codex.wordpress.org/Giving_WordPress_Its_Own_Directory#Using_a_pre-existing_subdirectory_install).
A few months ago I also changed the permalink structure from /year/month/post-slug/ to just domain.com/post-slug.
The redirects I have setup are twofold:
1. Bots and old links out there that keep trying to find the old permalink system are being sent to the new one
2. Old directories created by me before I used WP that I later deleted, pointing old links/bot crawls to someplace else.
Neither of these redirects are significant nor do they affect the theme trying to pull based on the old structure (3.1.16 and before). Since all this started with the update to 3.1.17, I suspect that has more to do with it than plugins or redirects. Later tonight I will check the diagnosis page to which you linked.