why do some trades not allow sub domains
 

I have noticed that several trade sites have a rule for trades that your aren't allowed to host your site on sub domains eg. http://blog.toplessbabez.com

I am stuggling to understand why they wouldn't allow this. Any thoughts?

Not to long ago search engines treated sub domains just like a normal domain however some dumb ass had to ruin it and get abusive with this and as a result sub domains are pretty much worthless now for SEO purposes. Well not totally worthless but they are given a penalty by the major engines so that is probably the reason why. Considering the fact that you can get a .info for $1.99, I would say just go invest in one of those for oyur blog.

That and people make them so fast and delete them after using them for link spam and all sorts of things.

As far as I know Google treats subdomains like a domain of its own. This is what I have read in several SEO blogs.

A lot of people who do this wont even take you seriously if you dont have a domain name and host of your own.
I refuse all link requests from subdomains for various reasons, the main ones being that people who are using a subdomain often are not in control of the server itself, and that means a crappy surfing experience for my surfers when they have to deal with pop-ups and all the crap that comes with subdomains 80% or 90% of the time. Not all of them do it, but in the past i've seen enough to know i'll never deal with em.

just use toplessbabe.com/blog instead.
doesnt really matter (if u really want to trade, that is)