I am using subdomains and testing this plugin out and in my first test (attaching test.andrewteg.com to Public Group Test) it appears to work fine. I then tried to create a new blog while creating a new group and got an error, so I deleted that group and then went to "Super Admin" and created the blog and then re-created the group and attached the already created blog just fine.
May I ask what is not working? Is it just creating a new blog? If so, I can happily live with that and create the blogs first for now! Also, I'd be happy to help you look into it if you don't have someone on that issue.
But if anything other than creating a new blog is not working, please let me know and I'll keep testing on my own too :) I think this is a greatly needed feature for group admins to communicate with groups and glad to see such a great solution!