Indexu created a directory plugin for wordpress , a new version was released just recently. Check it out....
I poked around the net and apparently there are some new plugins released to turn WP into a directory: http://directoryhandbook.com/wordpress-directory-plugin.html
Forget plugins! How about a wordpress directory script that makes a blog a directory? This is for new blogs, nothing on them. Not to be added to a present blog. Read more here and get the link to download this script free. Directory Daily For a demo of the script, with nothing done to it yet, see my site at: http://www.directoryoftwitters.com For sure, this might be an alternative to just a directory on a domain.