1) In terms of Link development/ SEO, would starting a blog in subdomain of a directory (eg. www.directory.com/blog ) boost the directory in terms of traffic and PR? 2) Would a blog on a subdomain (eg. www.domain.com/blog ) be able to get good search engine ranking/ PR like a blog on homepage (eg. www.blog.com) ?
For your first question PR and backlinks are interrelated ,if you have linked your subdomains from main site definitely you would get Good PR and also you should build backlinks separately for your sub domain Yes Google treats blog on sub domain in the same level as a blog on domain but all depends upon on backlinks!
i have found better success with feeder sites, a site on a different server sending traffic into my main site. most of the feeders sites are in a blog format.
I have found a few of disadvantages to this. One is that if the blog becomes successful, you can not sell it unless you sell the whole site because it is just a sub domain. If the site or the blog causes any kind of SEO problems, the whole site is often affected. Putting a blog on its own domain seems to carry more authority and respect from both the advertisers and the readers. If you choose to do the sub domain thing, be sure to promote it as blog.domain.com not domain.com/blog. The main reason is because it will be considered an inner page of the main page and not a sub domain. Many directories do not allow deep linking from inner pages but they allow sub domains. It is a much better way to build links.