Great article on Subdomains and Search Engines from Nov. 2005 by Vodabot from Vodahost. Also read an article from May 2005 talking about the downsides of using subdomains.
On another article I read the generally considered limit for pages in a subfolder is 65,000 – I have been burned before with security flaws in some software platforms and would like to seperate some of them with subdomains. Having also been burned in the past with SEO practices that were too aggressive; it leaves me in a quandry. Is it ok to seperate to subdomains simply to isolate different software platforms. Everytime I come to a conclusion, I seem to read a discussion that supports the opposite of where I am at the time.
If sticking to the golden rule of doing what’s best for users, then subdomains is the right answer for me. But the real answer is what do the search engines think is best for my users – that’s the slippery slope.
Jury is still out, but check out the article – Lots of good info in there.