I like Carson's approach. Both my product site and my blog site are created using wordpress, and the feeds are managed by feedburner. I searched the web and found feedburner may have limited support for category, but wordpress can support feed for category very well. So The solution can be:
- Create 2 feedburner feeds from my blog, one for all the posts of blog (feed1), and the other for one category specified for products (feed2).
- Feed1 will be set as my feed for blog
- Feed2 will be set as my feed for product site
Looks not too bad, the only concern is that subscribers may getting confused by 2 domains.
Edit: However, when I start to think more about branding. Host 2 domains have no contribution to brand, just confusion. So the answer should be clear, www.domain.com/blog is better. Better for SEO, rank, and less confusion to visitors. But we do can make 2 different feeds for different types of visitors.