I have done the following after asking for advice about 2 years ago.
My site has the folder solution, ie: pokerforfree.org/nl/etc/etc/
The reason I choose this method is that this way my domain is seen as one big site. If you go for sub domains, these are seen as different sites, although you could still inner link them.
According to many sources, it really doesn't matter which method you choose to implement regarding SEO advantage. It's more which you prefer.
Also, you can still set the geographical target in Google's Webmaster Tools. You just create a site including the domain folder, ie: pokerforfree.org/nl/ has the geographical target for the Netherlands.
When linking to the languages, make sure to use href lang attribute, ie:
Also specify the languages in the html tag, ie:
<a href="pokerforfree.org/nl/" lang="nl">...</a>
Hope that explains a bit.
<html xmlns="http://www.w3.org/1999/xhtml" xml:lang="nl" lang="nl">
PS: If you do some research for foreign languages in Google.com you should be able to see which of the methods rank better, I guess.