If anyone else is wondering how to do this on Heroku, http://stackoverflow.com/questions/6179398/how-can-i-use-a-s... seems to be the canonical Stack Overflow question. I'm going to try the Rack::ReverseProxy suggestion myself sometime soon.

So you think it's worth the move to example.com/blog even if you already have an established blog.example.com?

That's been my experience. Not only will the blog's pages rank better by being on the main domain, they'll also help the rest of the site's content rank better by bolstering that location's authority.

That said, I don't want to suggest this is always true all the time or that Google/Bing never group subdomain authorities together, just that we've seen inconsistency and thus I'd recommend keeping them together.