I am totally new to web master stuff.  Actually I am not running on shared hosting..I have full control of the machine.   I have tested social engine and they had similar setup screens and it went without any problem.  I even followed a tutorial on how to install elgg with ispconfig.

Cash..why the data directory is is under var/www...I am using ispconfig which created a virutal directory and everything is uploaded there that's why i created it there.  I have created the directory outside that path also but I will try that again.

I don't know anything about ISPConfig. On a clean Ubuntu server install, you only have to create the database (use phpmyadmin), edit the apache configuration to turn on mod_rewrite (set AllowOverride to All for /var/www), and create a directory for the data. From there, you're just following the instructions in the installer.

Thanks Cash and Studio1031.

There's seems to be some issue with elgg doesn't work with elgg.  So I followed your (Cash) advice and learned how to create website under /var/www/.  The only issue was about creating database even though i created one using Webmin that didn't seem to work.  Then i just used Ispconfig and created another one and upated the settings.php under the engine folder and eveything else went smooth afterward.

if anybody needs help here's the site i used

http://www.debian-administration.org/articles/412

I didn't create this file virtual.conf as mentioned in the article.   When the article says to created this file /etc/apache2/sites-available/www.example.com.  I created www.exmaple.com.vhost.

http://articles.slicehost.com/apache