Feedback on Directory Project

Does the Multi-Domains plug-in work the same as the Networks + plug-in?
Networks + Link: http://wpebooks.com/networks/

My Project Scenario:
I need to create a network directory where blogs are created under categories specific to it's function. So http://mydomain.com is the parent site containing the top level categories. Lets say a directory containing all 50 states. So you go to the site and you see:

Alabama Florida Georgia Hawaii etc

When clicked these would appear in the following format:
http://mydomain.com/state/
http://state.mydomain.com/

When a state is clicked it displays the blogs that have been assigned to that state.
http://mydomain.com/state/blog
http://state.mydomain.com/blog

The challenge would then be assigning the blog to a particular city in that state:
http://mydomain.com/state/city/blog
http://state.mydomain.com/city/blog

Members will have the option of paying for the blog and upon creating it will assign it to it's state and/or city categories.

There's more to this at the blog level but I need some help or direction with the actual network design. Do I need to pay for the Network + plugin or can I accomplish this using the Multi-Domains plug-in? Should I be considering the domain-mapping plugin? Do I also need to use the Multi-DB plug-in? Is there a plugin that will allow me to create the category and have the blog assigned to just that category? BuddyPress will more than likely be installed at the root level.
Any responses appreciated.