A few reasons off the top of my head where subdomains make sense: 1. Letting users override subdomain with a custom domain (ala Posterous) 2. White-labeling (es

A few reasons off the top of my head where subdomains make sense: 1. Letting users override subdomain with a custom domain (ala Posterous) 2. White-labeling (esp. in combination with #1) 3. SEO - last I researched, Google sees virtual hosts on same IP as separate entities, so if your clients use a custom domain and you have a "Powered by" backlink, you'll get some SEO juice