Done on my Ubuntu 10.04 it will work on other server images too.
The proper way how to install the subdomain is to treat subdomain as a regular domain
Go to the menu "Sites" and create main site and as many sub domains as you want. Follow the ISPConfig3 protocol.
Each site must have "Auto-Subdomain" set to [*.] so the ISPConfig3 will insert the directive "ServerAlias *.domain.com" in the Ubuntu's "sites-enabled" files. Save the Sites
You must manually edit "sites-enabled" feles as followes:
domain.com = Site 1 ServerAlias domain.com
sub-1.domain.com = Site 2 ServerAlias sub-1.domain.com
sub-n.domain.com = Site n ServerAlias sub-n.domain.com
The main domain must NOT contain [*.] but it may have list of www.domain.com, ftp.domain.com, mail.domain.com etc.
That is all you need to do in the Ubuntu's sites-enabled directory of above files. Save the files
Restart Apache2: ~ /etc/init.d/apache2 restart
Then select the "DNS Zone" menu and "Records" tab.
For each sub domain add "CNAME" and "A" record i.e. "sub-1" as shown above. Follow the ISPConfig3 instructions to do that.
Wait up to 48 hours.
Keep checking that your sub domains deliver same DNS info as your main domain here http://network-tools.com/
You are done.
Now every sub domain have same features and same file structure as the main domain.
The ASPConfig3 feature "Subdomane for Website", to subdomain redirect, is illogical ad should be removed in the next update.