I don't want to use sub-domains, but would rather the set up be www.domain.com/1, www.domain.com/2 etc. I can do this with new wp installations for each - but I go through the home wp site, create a page name 1, then go to Cpanel and create the 1 folder with new setup of WP - this all works, but is this proper?
What do you mean with large? WordPress MU is handy when you want to centralise plugins and themes. If your sites vary in that way I should propose to use single WordPress installations and control its throughout the Cpanel.
You have 2 recommended options. Use single installations for each /1, /2, /3 and a main installation as the home page.
Or just use the one database. As your site grows, if you need to add more resources to the database, you'll add extra database servers to handle the load but the data will still be in one database, you'll just use load-balancing technology to distribute the load.