Not sure if this is how to "properly" fix it or not, but I got it working this way.
In "ds_wp3_private_blog.php" look for the line:
add_filter( 'login_url', 'ds_my_login_page_redirect' );
and on the next line I put:
$current_blog->public = get_option('blog_public');
Again, not sure if placement or this code is how it should be done but it's how I hacked it to get it working.