I'm doing something similar - I set up a wildcard subdomain and a script as you described, so that every request for http://anything.prescottontheweb.com/prescott/anythingheretoo goes to a single script (prescott). This script looks at both the subdomain and the $REQUEST_URI to determine what content to display. This has worked extremely well for me, as it makes things like logging very convenient and it also makes search engine indexing more agreeable.
I would rather be able to just use URLs like http://something.prescottontheweb.com/somethingelse, but I don't believe there is any .htaccess directive that would send all of those requests to a specific script. The way I worked around this is by making a script which is run for all 404 errors. This script simply takes the $REQUEST_URI and redirects the browser so that /prescott/ is in the URL. That way I can put short URLs into email messages, advertisements, etc., and have the proper URLs in my on-site links.
This might seem awkward, but putting prescott/ into all of my URLs is really not that much of a hassle. In fact, I think it has worked to my advantage, because Prescott is a common search term for people looking for my site, and I've been getting a very satisfying amount of search engine referals.
-Keegan
P.S. If you haven't already, take a look at Tim's column "Building dynamic pages with search engines in mind" on this site.
