Hi,
Thank you all for your  posts!
I'm using ADSL modem and my current SME 5.6 installation is 
- "server and gateway. - dedicated" 
- DHCP client disabled - I'm using static IP address.
Once I created i-bays and defined virtual domains I was able to access the folders them via:
www.mydomain.com/subdomain1www.mydomain.com/subdomain2and the default index.html page gets loaded.
What I expected to be able to do is to access them as:
www.subdomain1.mydomain.comwww.subdomain2.mydomain.comAttempts to access them failed even from the internal LAN.
My guess is that my SME 5.6 server installation has no
DNS server properly configured.
If this is the case what can I do to fix the problem?
Thank you for your help in advance!
Regards:
Milen
P.S.
Here is my current SME configuration:
Review configuration through web server-manager:
Networking Parameters 
Server Mode servergateway 
Local IP address / subnet mask 192.168.163.1/255.255.255.0 
External IP address / subnet mask xxx.xxx.xxx.xxx/255.255.255.0 
Gateway  
Additional local networks No additional networks defined 
DHCP server enabled 
Beginning of DHCP address range 192.168.163.65 
End of DHCP address range 192.168.163.250 
Server names 
DNS server 192.168.163.1 
Web server 
www.mydomain.com Proxy server proxy.mydomain.com:3128 
FTP server ftp.mydomain.com 
SMTP, POP, and IMAP mail servers mail.mydomain.com 
Domain information 
Primary domain mydomain.com 
Virtual domains subdomain1.mydomain.com
Primary web site 
http://www.mydomain.com