Originally Posted by John.

I would suggest trying all of the above on several different sites and find which works best for you.

I do know that subdomains are treated as individual sites by search engines unless there is a link to the subdomain from the main domain.

There is no "penalty" for linking subdomains to subdomains or subfolder to subfolder. In my opinion, if done correctly this is encouraged by search engines.

Experiment and observe, I think that's the key to SEO.

Good luck!