You only need
one LocalSettings.php for each wiki you set up; the rest
of the code needs to exist only once. We do that on wikipedia as well.
That'd probably be worth documenting. I tried keeping one set of files with
a bunch of different LocalSettings.php files in different virt server dirs,
with little success. The installation, update, and command-line scripts
don't really favor that approach.
So, how is it done for Wikipedia?