I'm not sure how directly relevant this is to your problem but I've found that (ironic as it sounds) FrontPage is much easier to deal with on Linux than on Windows so unless you really need Windows for other reasons, I suggest moving to Linux. On Linux I just set my one admin type user in Hsphere then don't touch Hsphere again. If I need additional users then I happily maintain them from within the FrontPage client in the "Security" menu. I think it is just modifying .htaccess files whereas Windows needs genuine Windows users.
Subwebs don't seem to be a problem on Linux. You can create them either by opening the root site with FrontPage and doing a "Create Web" or don't even do that, just "Publish" to the non-existent subweb for the first time and it gets created. I have a customer with about 10 subwebs on one site. For one subweb I used the FrontPage client to setup a user with publish permission only on that subweb and not the root and that seemed to work okay in my testing although I don't think they ever really used it in practice. Just one thing to remember, if things do get screwed up and you need to fix or reinstall FP extensions from within Hsphere then subwebs revert to being simple folders. You can easily change them back to subwebs, again using the FP client but you need to remember what was a subweb and what was a folder.
Cheers
Ross