This really depends on a lot of factors - how many people working on the website and, of course, the nature of your website.
For a single-developer website, I would stick with having a development environment locally, with a manual SVN linked to a testing subdomain. Edit on your local PC, then if you're happy that it doesn't cause any errors, commit the changes. Then when you're happy with it, copy over to the main domain.
I'd say the main domain and the test environment should be the same domain, but different subdomains - unless you utilise subdomains as part of your website's functionality. I would also then recommend that the domain and test root directories should be on the same server (preferably siblings of a common parent directory), which would make the process of copying the files over from the testing website to the main website more convenient (and faster).