This Subdomain vs subfolder issue is one of many decisions on business blogging for companies deciding on setting up a blog. If you get the decision wrong you may not take advantage of the authority of your existing domain and so your blog won't attract much traffic initially.
I've recently setup a new WordPress blog to replace my legacy blog, so I thought I'd share my experiences in case anyone passes this way.
Initially I set it up on a subdomain http://blog.davechaffey.com.
I pointed all my run-of-site nav links at this sub-domain.
I think I felt that the longer-term benefits of being on a sub-domain and pointing back to the main site might give some SEO benefits.
I used this earlier discussion on Subdomains vs subfolders for SEO to inform my decision. There's clearly no right or wrong answer.
After a week it was in the index, but not featuring for any 3-4 keyword searches, so I lost patience and 301 redirected the sub-domain to http://www.davechaffey.com/blog and changed all the run-of-site links and links from other sites to this new address.
Within 4 or 5 days i was starting to appear for long tail 5 or 6 keyword searches and within a fortnight appearing on first page for blog titles/shorter searches.
So based on that, I'd recommend subfolders is the way forward for blogs if you want to swiftly pull in visitors based on the authority of your existing domain.
That'll be obvous to many, but I wanted to trial it and that's what I've found.
Subdomains and subfolders for Google Analytics
When I taking my Google IQ qualification recently I thought of another benefit of the subfolder approach.
Since Google Analytics serves first-party cookies for each different domain or sub-domain, this will mean that sub-domains aren't tracked as part of an integrated whole site. But they are integrated if they are part of a subfolder.
With a subfolder as the one on this site, it's recommended that a profile is setup with an include filter for a subdirectory ^/blog/ so you can still isolate traffic for that part of site.