Sub Domains vs. Persistent URLs

[VERBInteractive]

I've always been under the assumption that when building a micro-site it was better to use a true path (e.g. yourcompany.com/microsite) URL as opposed to a sub domain (microsite.yourcompany.com) from an SEO perspective. Can you still generate significant SEO gains from a sub domain if you were forced to use it providing the primary (e.g. yourcompany.com) had a lot of link clout/authority?

Meaning, if I had to go the sub domain route would it be the end of the world?

[Gyorgy]

It's not the end of the world, but definitely more expensive.

As you probably know, the folder microsite gets most of the root domain's authority, while a sub-domain doesn't get anything at all, or just a fraction of the authority; therefore, you'll need to invest more in content, links, social factors, etc.