I came across this issue yesterday when reviewing a customer's SharePoint 2007 configuration.
Sympthons: When a user clicks "My Site" SharePoint 2007 returns an error message to the user along the lines of: "Your personal site cannot be created because the managed path "http://server_name/mysite.aspx" has not been created for this site. Contact your site administrator for more information."
Resolution:
Figure 1: My Site link
Figure 2: Set As My Site Host