Ok so my situation is kinda of unique(or maybe I just feel so) and I need some expert help from Wordpress know-it-alls.

The situation right now:
I have started a blog(www.theindianmile.com) for my travel company (www.travelsenseindia.com). In WP.com I have purchased a redirecting facility of http://www.theindianmile.wordpress.com to http://www.theindianmile.com. http://www.theindianmile.com is a link on my website under blog.
What I have come to learn:

1. I had done the above before I found SME and learnt/advised by the community that to make the best of SEO it is advisable to have the blog and the website on the same domain, i.e. website = http://www.travelsenseindia.com and blog = http://www.travelsenseindia.com/blog (redirected to http://www.theindianmile.com)
2. During the Blogging Fundamentals workshops we were informed that Wordpress.org is the best platform if you know your blog is going to get big and for various other reasons.

1. Can I have my blog on wordpress.org while it is redirected?
2. Should I have http://www.theindianmile.com on WP.org or http://www.travelsenseindia.com/blog?
3. Will this require for me to end or cancel the Domain forwarding that I have with WP.com for http://www.theindianmile.com?

@ernohannink Hey Erno

I am presuming by sub-directory you mean sub-domain (www.blog.travelsenseindia.com) and YES that is what I want to do.

I had started configuring the wordpess.org software and I am stuck at point. Is there any good resource or video etc that you know of where I can find a ‘how to install wordpress.org’ kind of a guide??

@udithooda – with subdirectory I mean a directory on your domain and will look like this  http://www.travelsenseindia.com/blog/I prefer this over the subdomain.

Here is a video I found http://www.youtube.com/watch?v=TbgvNOm36f0Good explanation of how to install it on a site that is hosted at MediaTemple (great host that I use as well) http://kb.mediatemple.net/questions/913/How+do+I+install+WordPress+using+the+1-Click+Applications+tool%3F

There is no need to redirect the blog to a different domain. The idea is that you build as much traffic and links to your most important domain (travelsenseindia.com). This will help you rank higher in the search engines for this domain. With great content you will attract traffic to your blog and therefor to your main domain (and website).
when you install WordPress in travelsenseindia.com/blog/ the blog is directly accesible via that path travelsenseindia.com/blog/ in the browser. No need to redirect it to theindianmile.com.
What you can do is redirect theindianmile.com to travelsenseindia.com/blog/, so when people type in  theindianmile.com  they will go to your blog on your main domain.
It does not really help, but it also does not hurt the ranking of your blog in the search engines.

Since you have no content on theindianmile.com it will not rank in the search engines and this domain his virtually no value at the moment.

Recap: focus on travelsenseindia.com and travelsenseindia.com/blog/ – don’t spend much time on theindianmile.com