Google has done domain wide free host manual actions before, where they will go ahead and penalize the whole free host and all the subdomains on that host. Google has also offered advice on how free hosts can try to stay penalty free.
In the latest Google Webmaster Hangout on Google+, the Googlers talked a bit about free hosts and subdomains, around penalties.
The question was answered at 17 minutes and 30 seconds into the video hangout:
Can I tell google to explicitly treat subdomains as separate sites? This is done for wordpress, tumblr, etc... Client generated content on subdomains is penalizing the root domain (as seen via webmaster warnings/messages).
Mary answered first saying "We are very good about understanding wether your subdomain is related to the domain. Like if you have content that is completely different."
They went on to explain that free hosts may see a domain and subdomain wide manual action - they've done that before. If you are on a free host, you may be affected by that or maybe not.
Google said they always try to take a "very granular" approach to these actions but if you are a free host and you notice a wide spread issue, then you really should dig deeper into the type of sites signing up for your service and moderate that better.
Here is the video embed at the start time:
Forum discussion at Google+.
