Nginx: Rewrite rule for subfolder

I have a subdomain where I want to keep projects I am working on, in order to show these projects to clients.

Here is the configuraion file from /etc/nginx/sites-available/projects:

server {
    listen   80;
    server_name projects.example.com;
    access_log /var/log/nginx/projects.example.com.access.log;
    error_log /var/log/nginx/projects.example.com.error.log;

    location / {
        root   /var/www/projects;
        index  index.html index.htm index.php;
    }

    location /example2.com {
        root   /var/www/projects;
        auth_basic           "Stealth mode";
        auth_basic_user_file /var/www/projects/example2.com/htpasswd;
    }

    location /example3.com/ {
        index  index.php;

        if (-f $request_filename) {
            break;
        }
        if (!-f $request_filename) {
            rewrite ^/example3\.com/(.*)$ /example3\.com/index.php?id=$1 last;
            break;
        }
    }

    location ~ \.php {
        root /var/www/mprojects;
        fastcgi_pass  127.0.0.1:9000;
        fastcgi_index index.php;
        fastcgi_param  SCRIPT_FILENAME  $document_root$fastcgi_script_name;
        include /etc/nginx/fastcgi_params;
    }
}

I want to be able to place different php engines (wordpress, getsimple etc.) in subfolders. These engines have different querry parameters (id, q, url etc.) so in order to make preety URLs work I have to make a rewrite.
However, above doesn't work. This is the response I get:

Warning: Unknown: Filename cannot be empty in Unknown on line 0
Fatal error: Unknown: Failed opening required '' (include_path='.:/usr/local/lib/php') in Unknown on line 0

If I take out "location /example3.com/" rule, then everything works but with no preety URLs.
Please help.

The configuration is based on this post:
https://stackoverflow.com/questions/2119736/cakephp-in-a-subdirectory-using-nginx-rewrite-rules

I am using Ubuntu 9.10 and nginx/0.7.62 with php-fpm.