What would be the best approach for SEO where you have a domain (premium .net framework model) hosted on say server A, and you create another site (free PHP/wordpress model) to drive traffic to it. Would you host the latter as a subfolder or subdomain? Also, where would you choose to host the subdomain or subfolder, on server A or elsewhere?
Subfolder is definitely the way to go. Here is why:
With subfolder, you share SEO juice with the root level domain.
If you do sub-domain, it's like a whole new domain (in the eyes of Google) and will not get any existing SEO benefit.
Subfolder all the way. There have been numerous tests done on this question, and they all show that the subfolder option gives you the benefit of the main domain. When you create a subdomain, search engines look at that as a whole other site, and you do not get the same benefit from being associated with the main domain.