I manually created my moodledata directory with 750 permissions, but the web based installer changed those permissions to 777. Is this normal, I don't want anyone with local access to the server to have access to this folder.
Check config.php file.
Not sure what you mean by 'anyone with local access to the server' ... if moodledata is located outside of document root for web service then (supposedly) moodle scripts has access.
'local access' to me means ssh ... unless you've set up some other access.
'SoS', Ken