Hi Imedia,
So glad to help. A multi-location business model's most unique power is that it can have multiple, legitimate local listings in Google (unlike a service area business with only one location but many service cities). The multi-location business can have one listing per public-facing physical office and these listings can be tied to landing pages on the website. For instance, the Chicago office listing can link to acmeplumbing.com/chicago-plumbing-company (just an example).
As for subdomains, Google reps have stated that Google has no preference for these over subfolders. In other words:
acmeplumbing.com/chicago-plumbing-company
is not a better or worse alternative to:
chicago.acmeplumbing.com
So long as Google can crawl the architecture of the website, they don't care. I find subfolders to be easier to manage than subdomains, personally, so I tend to go that way with my own clients. And, I would consider either subfolders or subdomains to be preferable to microsites, even for a multi-location business.
Exceptions to this? Possibly for large franchises with multiple franchise owners, it could be good for each branch to have its own, fully-fleshed-out website. For example, Ace Hardware is a large hardware franchise where I live. If each Ace location in California wanted to have its own website, in addition to the Ace Corporate website, this might be doable, but I wouldn't think of these as microsites. They'd need to be full-fledged websites. And, I would only suggest such a thing under the rare circumstance that the parent company had very clear guidelines about content policy, management of Google+ Local pages and citations and a whole host of other things. It could be a big huge mess, but in some circumstances, with tech savvy franchise owners, it might work.
Hope this helps!