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This might help (if you haven't read it already): http://www.mattcutts.com/blog/subdomains-and-subdirectories/

I use subdirectories.

From an SEO perspective subdirectories are considered better than subdomains because subdirectories help the ranking of the primary domain better than subdomains.

If you want the overall ranking of www.example.com to improve, use www.example.com/producta and www.example.com/product, not producta.example.com and productb.example.com.

http://www.seomoz.org/blog/subdomains-subfolders-and-topleve...

Historically, it’s been kind of a wash about when to use subdomains vs. subdirectories. - Matt Cutts

http://www.mattcutts.com/blog/subdomains-and-subdirectories/

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