Thanks in advance for looking at this. I am having trouble wrapping my mind around this (drinking from a fire hose), and would like some advice before setting up Multisite.

Both Technical and SEO issues are the question. I am setting up a primary multisite site with many domains as addons to make maintenance easier.

One confusing thing to me in the forum/support explanations is what the URL's look like to end-user visitors rather than what is on the server/DNS setup.

Desired end result for what the visitor sees is simply:

domain-main.com (blog1)
domain-main.com/blog2 (different theme)
blog3.domain-main.com
addon-domain1.com (blog4)
addon-domain1.com/blog5 (different theme)
addon-domain1.com/blog6
blog7.addon-domain1.com

1) I believe using Domain Mapping plugin will deliver what I want, but should I setup as subdomain or subdirectory ?

2) do I also need to use Multi-Domains plugin?

3) Under this scenario is there a benefit to choosing multisite subdirectory setup to get more SEO juice from Google as it sees subdirectories as the same site, while subdomains are seen as a separate website? or will the mapping negate this as a non-issue?

If I have to sacrifice whether addons have a subdomain or a subdirectory - I definitely need addon domains to allow for subdirectories with different themes - as this is a big SEO issue.

Background:
I have dedicated IP on a shared server (hostgator reseller), I don't think performance will be an issue for awhile... (server load and memory use always look like low percentage) .. but there are over 100 addon domains - I'd split them up into more cpanels but hostgator is being stingy with dedicated IP's and requires SSL to justify selling you one for shared server accounts. I need to set this up and test the waters before going with VPS.

They are all new domains (or at least starting over) so no concerns about existing URL's and redirects

setting up wildcard subdomains is apparently not a problem (as described by hostgator - they allow both wildcard subdomains in the cpanel as well as addon domains http://support.hostgator.com/articles/hosting-guide/lets-get-started/dns-name-servers/wildcard-dns-what-is-it-and-how-do-i-use-it ) -- but they say something scary about wildcards allowing addons to show the same content.. which I don't want at all... that might just be a side issue and not really related but something I don't understand.

Thanks for taking the time to review this - and answering the key questions of subdomain/subdirectory and if need BOTH plugins Domain Mapping and Multi-Domain

Regards