Hi Jack, I've been wanting to reply to this one.
I setup my latest Blogengine BE on a subdomain.
My host recommended the option of setting up the subdomain as a subfolder of the main domain, since it's a control panel option, at least with Plesk shared hosting.
From there you give the entire folder write permissions and it's pretty much the same as a virtual directory setup. But easier than jumping through the hoops at least with Plesk of setting up virtual directory, and made better sense to me. IE I was able to do the setup on my own, and not require help from my hosting support, I hate bugging those, guys that's the point of having control panel shared hosting to me.
Not sure if this helps, any questions let me know.
What type of host do you have, or your own server maybe?