... a search on queer forum returns CraigsList 97 times out of the top 100 results.
Technically, while that's true, Barry, it's not much different than saying the search returns .org 97 times out of the top 100 results. We know, of course, that all .org domains are not treated as the same site. In precisely the same way, not all craigslist.org domains are treated as the same site either. Nor, in my opinion, should they be.
You can get similar results, if somewhat less dramatic, by searching for "Be a Guide" and looking for all the about.com subdomains (sub-subdomains are irrelevant).
Whether the issue is subdomains or sub-subdomains isn't relevant, in my opinion. The real issue is whether either should be considered independent entities. Should barry.tripod.com be lumped in the same barrel with ron.tripod.com, even though they ostensibly have very different content compiled by entirely different people? Should poetry.about.com be considered apart from pediatrics.about.com in spite of being managed by the same parent company?
Historically, at least dating back to the mid-Nineties, all of the search engines have treated subdomains (and, presumably by extension, sub-subdomains) as separate entities from their parent domain. I think there were good arguments for that decision, especially when a lot of free-site domains (tripod, geocities, angelfire, et all) were using subdomains for each of millions of free sites. Treating all of Tripod as simply one site would potentially "hide" a lot of relevant content from searchers. Similarly, even today, Universities on .edu TLDs still make extensive use of subdomains.
Personally, I believe subdomains (and, yea, sub-subdomains) should remain independent from each other and from the parent domain. That opens a door for potential abuse, of course, but the alternative (hiding relevant content) is far worse. And, geesh, these days just about anything opens a door for abuse after all.
One solution isn't to change the way subdomains are handled, but rather perhaps to fine-tune the Clustering algorithms to better recognize relationships between sites.
Google, I believe, has been trying to do that for some time now.
A friend told me an interesting story about two domains (not subdomains) he owned that were targeting the same keywords. One site ranked very well, but the other could rarely even be found in the same SERPs. A technical snafu went unnoticed long enough to cause the well ranking site to be dropped entirely by Google and, lo and behold, the second site suddenly started ranking extremely well for the same keywords which, just a month earlier, it couldn't buy a decent position. When the snafu was fixed and the other site indexed again, the second site once again slipped into search engine obscurity.
Clearly, I think, Google
knew the two sites were closely related and maintained by the same person, and I believe their clustering algorithm refused to show both sites in the same SERPs. I've never been able to duplicate the situation (in large part because I'm reluctant to get a well ranking site dropped from the index!), but a few simple tests have convinced me Google determines the relationship by examining much more than just registrar data. I believe the threshold is likely set very high and Google only clusters related domains when it is VERY certain of the relationship. Not incidentally, clustering policy has changed in the past year, now applying to SERP pages instead of entire searches, so it's now possible to get a second related site on page two. Even with that, though, if I'm right, SERPs like those for 'queer forum' could probably be corrected by simply turning the dial a little and setting the relationship threshold a bit lower.
I'm not sure, however, doing so would be a good idea.
I suspect that ANY solution to listings like those we see for 'queer forum' would create more problems than it eliminates. Stopping SE spam, after all, is actually very, very simple ... don't return any results for any searches. Those kinds of solutions, however, ones that throw out too much relevant data with the bad, obviously aren't good solutions for anyone. The trick remains to eliminate bad results without affecting any good results. Google, I think, is already walking a very fine line. Their obsession with spam has resulted in much less spam, but I think it has also resulted in a less relevant search engine. Spurious SERPs, like those discussed here, are probably always going to be the cost incurred by trying to capture good, relevant data.
It should be noted, too, that the recent indexing of some five billion spam pages has absolutely nothing to do with subdomains or sub-subdomains. The real blackhats have been doing the same thing, albeit on smaller scales, with cheap domains. Using subdomains, essentially free instead of just cheap, broadened the scale while simultaneously making it MUCH easier to catch, but are certainly not an essential ingredient in the scheme.
Suppose I have a vacation property rental website with the Home Page at www.rentals7235.com. I want to put up a web page for a rental property at Mont Tremblant in Quebec. Which of the two following URL's would likely work better?
vacation.monttremblant.rentals7235.com
www.monttremblantrentals7235.com
Barry, if the search engines are to treat domains, subdomains, and sub-subdomains as separate entities (as they have traditionally done), it won't make any difference at all as far as rankings are concerned which you choose to use. Pages will be ranked via on-page and off-page factors, not by the domain name.
You should also know, by the way, that www.monttremblantrentals7235.com IS a subdomain, just as much as is monttremblant.rentals7235.com or vacation.monttremblant.rentals7235.com.

As you alluded, Barry, rumors continue to circulate that subdomains are a way to bypass the alleged sandbox/aging delay/"factors that could be perceived as a sandbox" phenomenon. I can't personally speak to that, however, as I've neither experienced the phenomenon nor tried to start a new site on a subdomain of an old site.