i did it like this and works fine even for permalinks! (diud not get the permalinks working with the pastebin example)

        root /var/www/siteroot
        index index.php index.html index.htm;

        # Make site accessible from http://localhost/
        server_name domain.com;

        location / {
                try_files $uri $uri/ =404;
        }


        location /site1 {
                index index.php index.html index.htm;
                try_files $uri $uri/ /site1/index.php?q=$uri&$args;
        }

        location /site2 {
                index index.php index.html index.htm;
                try_files $uri $uri/ /site2/index.php?q=$uri&$args;
        }