A few reasons off the top of my head where subdomains make sense:
1. Letting users override subdomain with a custom domain (ala Posterous)
2. White-labeling (esp. in combination with #1)
3. SEO - last I researched, Google sees virtual hosts on same IP as separate entities, so if your clients use a custom domain and you have a "Powered by" backlink, you'll get some SEO juice
