Interesting thread and many good points.
My experience is that subdomains can be very good under the right conditions.
Eg. running a general directory, I belive the benifits of useing subdomains vs. folders is great.
1 point is the general relevancy of the domains.
If you use subdomains to your main categories, the whole relevancy/theme is set from the beginning, and both the human eye and SE know what they can expect on a given subdomain and its subfolders:
art-culture.website.com (yes art and culture, and this goes for the whole domain, so art&culture is set as relevant for all pages/folders on this subdomain, and this is GREAT for the listings/submitted sites.)
I run a couple of directories where I test this structure, and I am very impressed with the results, vs. folders.
One thing is I rank great on searches, on all major SE. Secondly is how easy and fast PPC Ads catch on the relevancy
For distribution of pagerank, I can reveal this from personal tests.
www.website,com (PR6) Only domain with external inbound links
art-culture.website.com (PR5) only internal inbound links from www.
art-culture.website.com/artists/ (PR4) only internal inbound links from www.
One of my live sites with this structure is
www.global-weblinks.com, but its still to new to be given internal PR