Do they really? It seems more likely that they'd simply use a wildcard.
That'll teach me to post late at night. I forgot wildcards existed.
I was thinking that (if I built tumblr) they would do subdomain searching at the DNS level to avoid hitting their database.
Makes it even worse if they are using wildcards.
But if you don't publish an A record you get an ugly browser error message, whereas publishing the wildcard gives the user a notice saying that no such blog exists.
Admittedly, they update their zone very frequently (every time a user signs up/changes name/deletes themselves), but you'd think they would have an independent secondary DNS provider somewhere.