I hate to dig this back up, out of the proverbial graveyard, but it seems that this thread's topic never made it into 2.2.1. I have several branch sites that are simply http://site.com/subsite/, and these are interpreted by SS as part of the CMS, and pop up with the standard 404 message.
Where would the _exclude.php file go? In my root/mysite directory?

I hate to be an ass, but upgrade to what? 2.2.2rc1? Sorry, but I tried that, and somewhere in the mix, SS didn't want to work.
I'm running on the latest version that is stable for public consumption. How much higher would I have to upgrade to use my subdomains?
My main gallery (Gallery2) is in its own folder now, and has its subdomain set accordingly. But when I go to gallery2.harshmage.com, SS tries to take over. Let's not even touch the fact that any non-standard objects in the /gallery folder for the SS Gallery module breaks the SS installation completely (which is where my Gallery2 site was until I figured out what was breaking SS and giving only the blank page of doom).
So I'll guess that _exclude.php goes under the /mysite folder, and the listing of non-SS pages get listed there.

Again, I'm sorry to be the grave digger, but it's not made to be even somewhat obvious.