In umbraco v2 installation in a sub-directory was allowed but it was just too problematic for all sorts of reasons and caused people a lot of difficulty. For v3 sub-directory installations were officially unsupported. It seems unlikely that will be changed in the future but perhaps the core team can say otherwise. The difficulties are not only in umbraco itself but also with the various packages that people contribute that are not always sub-directory "aware".
There are options, however, to avoid the child-site issue entirely. You could, for instance, install umbraco in a separate IIS site that uses a unique url/hostheader. Or the other websites might be moved to another url/hostheader. There's no problem running multiple sites on IIS (except in XP).
Also, only asp.net child-sites will cause any problem at all if put into a folder beneath the umbraco installation. Classic ASP, JSP, ColdFusion, static HTML, etc. sites aren't a problem. And for ASP.NET sites, you should be able to place a web.config in the sub-site's directory to set/reset any values that the /web.config file for the main umbraco site requires.
And, you can run multiple umbraco sites from a single umbraco installation, such as for multi-lingual sites.
Basically, what I'm saying is that (at least in my experience) there is rarely (though not "never") a problem with requiring umbraco to be at the root of its IIS website.
cheers,
doug.
MVP 2007-2009 - Official Umbraco Trainer for North America -
Percipient Studios