Golfnfuul,
If your site will have lots of growth and freshness then go with blog.yourdomain.com because sub domains are treated as roots in regards to link juice. That is the links you point from you sub domain blog to pages, to within
www.yourdomain.com, will transfer link juice as if it were coming from another domain entirely.
But if your site is going to be mostly static pages that are not changing, then blog from a subdirectory like yourdomain.com/blog/ as this strategy will allow you to grow your domain content, as from a subdirectory your blog content belongs to your root domain; but the links from your sub-directed blog only carry the weight of internal links which are not as strong as links coming from an external source which includes sub domains of yours.
If you are entrepreneurial and hoping to later sell the blog, then you need to have it on its own domain entirely, like, yourotherdomain.com.
Hope this was helpful,
Robert