I'm going to agree with the Noisey Little Monkey and Andy,

I answered a question similar to this a while back - check it out

The summary - Rand did a great article on this a while back- http://www.seomoz.org/blog/unders...

There are also multiple other questions of a similar nature.

http://www.seomoz.org/pages/searc...

General consensus is be sub-folder over sub-domain.

Main reason - Sub Folders get the benefits from the root domain, Sub Domains don't.

Here's the key take away from Rands article:

"1 subdomain under 1 root domain (but feel free to use subfolders as it makes sense). Starting a blog? I almost always recommend yoursite.com/blog over blog.yoursite.com. Want to launch a new section of content? Use yoursite.com/newstuff rather than newstuff.yoursite.com."

Hopefully this will have helped you make your mind up.