It's better to use domain.com/blog for SEO reasons. You should also have a look at other hosted blog services. There are plenty of options around with TypePad, Blogger or even Tumblr. Squarespace is a good solution too because they let you import your data from Wordpress, Typepad etc.
Check out http://iwantmy.name/a for an overview of blog services that offer a custom domain option.
Check out http://iwantmy.name/a for an overview of blog services that offer a custom domain option.