You can set up your blog & portfolio with one WordPress installation only.
Fist check this codex article: http://codex.wordpress.org/Creating_a_Static_Front_Page
for portfolio it would be best if you’ll create Custom Post Type, then all you portfolio stuff will have permalinks like example.com/portfolio/some-great-project, but post permalinks would be the same – example.com/2011/07/14/hello-world/, maybe with some WP Rewrite you can improve this too
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