It takes 5-minutes to install a Wordpress blog. How many blog instances are you going to need?
I would create the subdomains and install a full Wordpress into each one. I manage 8 Wordpress blogs and it's no big deal when updates come out to keep them up to date.
I do not know if Wordpress Mu requires the use of subdomains or not to work but if it does then you will need a dedicated server as the other thread says.