Matt Cutts has tried to make the picture crystal about the statements he made at Pubcon. The issue has been doing rounds on a lot of blogs and forums. See, Would Subdomains Be Treated as Folders By Google?
He's discussed the differences between a subdirectory and a subdomain with the example "in a URL such as subdomain.example.com/subdirectory/", he follows this up by explaining the usage and benefits of the two. For subdirectories he says "That can make it much easier to find/edit/change code. It can also be easier to move code from one place to another.Ă˘â‚¬Âť For subfolders he says "Subdomains can be managed separately, which can be a joy (you can use DNS to decouple a subdomain if you want to migrate that part of your site) or a pain (it may be more of a hassle to juggle DNS setting instead of just using file commands to make or move directories)."
About Google's strategy, he informs that Google's been regulating multiple results from "hostname/subdomain of a domain name" for some time now. He calls this as "host crowding." But despite this regulation when they discovered that some searches were still returning multiple results they changed their algorithm, so as to make it less likely to happen.
"In the last few weeks we changed our algorithms to make that less likely to happen in the future." However, he clarifies "This change doesnĂ˘â‚¬â„˘t apply across the board; if a particular domain is really relevant, we may still return several results from that domain. For example, with a search query like [ibm]."
He expresses surprise, "In fact, this change has been live for a couple weeks or so now and no one noticed. The only reason I talked about the subject at PubCon at all was because someone asked for my advice on subdomains vs. subdirectories."
Here's some advice from the Googler "My personal preference on subdomains vs. subdirectories is that I usually prefer the convenience of subdirectories for most of my content. A subdomain can be useful to separate out content that is completely different."
Has the speculation on the issue been tackled somewhat?