I use sub domains massively.
A few rules I have placed on myself over time are the following.
If I use sub domains I make sure the main domain is not related to any sub domain name either in terms of category or phrase.
The main domain name may provide the same umm focus but is not related to any niche or group of niche.
Example of what I mean:
Main domain tips.com
You can use selling.tips.com, dogbreeding.tips.com, horseracing.tips.com
Get it? the main domain is same but when its used for sub domain use it allows for very distinct domain and site creations.
Recipes.com would not be the same. Its use creates too much 'relevance'
and to have many of them coming from the same server could cause problems.
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If your focus is primary on PPC then I would go the sub domain route
If your focus is primarily seo and content driven then go the folder route.
IMHO If you go the sub domain route and your focus is content / seo then do not go wild cross linking the sub domains..that will bring problems.