A blog on /blog will acquire with it more of the authority of the root domain. This could be good or bad depending on the quality of the other content of the root domain.
A blog on a subdomain will be more isolated from the root domain. This is good if you're doing questionable things with your blog (like autoblogging). It is bad if your root domain is very popular and authoritative, because your blog won't automatically acquire as much of the positive aspects of the root domain and have to almost "start from scratch" on its own SEO and authority.
Recently hubpages switched to subdomains because its quality of some pages on its root domain written by bad authors were affecting the ranking of good pages by good authors. They wanted to move everyone to their own subdomains so that good authors won't be punished for bad content by bad authors. This would allow good authors to prosper and bad ones to be isolated to themselves. They did this on recommendation from a google representative and thus far it has been great for them (their rankings are improving).
http://siteanalytics.compete.com/hubpages.com/
If your root website is quality, and the posts you are making on your blog are quality, put it on the root domain. If you're dabbling in autoblogs or something, put it on a subdomain.