Multi-network subdomain question

Hi, I am creating a large multi-network (domain mapping, multi-db) installation on my site which is not up yet. I have a dedicated server and I am the root of that server. I have a question about using sub-sub domains. My root wordpress site is in my domain. I have a sub domain multi-site installation, as well as a multi-network plugin from Wordpress which I plan to change to the domain mapping plug-in from this site. I want to know if the following situation is possible:

eg.I have a new member. They are from Ohio. I want to create a blog for them in the following location,

1.Is that possible?
2.Is it practical?
3.How would I have to do it? (How could I create a new network...not the sub domain without having to use a purchased domain name)
4.Is there a better way to make 'communities' of blogs than doing it this way? (such as categorizing and making them search able?

The reason I want it this way is so it is easy for members to find others who are in their same region/state/community. For example, if you go on, you can click on the city closest to you and the domain changes to I want to be able to organize blogs on my installation by geographical location in the most user-friendly way possible. Maybe I'm just rephrasing my needs redundantly, but I'm having a hard time wrapping my mind around how to achieve what I'm looking for.