Subdomain Masking and WP

OK, I’m going to explain what I’m trying to make this site do so that if my reasoning on how to do it is faulty, someone can tell me how to retrace my steps backwards.

I am building a marketing help site for small business owners that will be marketed through newspapers in several different locales across the US. Ideally, I would like to have each newspaper to direct people to city.mysite.com (sanfrancisco.mysite.com, chicago.mysite.com, etc.) The site they go to will be similar in most ways across all segments (our banner, a newsletter signup form, and an instructional video on maximizing advertising dollars). The only difference will be a secondary header underneath ours that contains the logo of the paper sending them there.

I have a few questions:
1. If I use subdomains to build this, will I need a WP installation on each subdomain to make this work?
2. Anyone have any ideas of plugins or hacks that I can use to create the secondary header that shows up differently based on which subdomain the person entered the page from?
3. My host offers subdomain masking, which can allow me to send all of the people to the same site, but keep the subdomain displayed in their browser as is. If I use this, is there a plugin that can track which subdomain they used to get there?

To answer the obligatory questions, I’m using the Headway theme, v 2.0.8, WordPress 3.0.4, and my host is godaddy. Thanks.