BuddyPress.org

WP 3.0.1 would be the best install with BuddyPress 1.2.6 (released this coming weekend).

But before walking through too much detail, is there a reason you want BuddyPress on a subdomain? Is WordPress installed on the main domain?

Now, it is possible to install BP and have members create blogs using subdomains .. but maybe you have a different purpose for putting the whole community on the subdomain .. which is also possible.

There are a growing number of great themes for BuddyPress:

http://premium.wpmudev.org/project/buddypress-magazine-theme

http://bp-tricks.com/

Also, you can take any WP theme and modify it to match the community by using the template pack.