Premature end of script headers: /home/user/sub1.mydom.com/cgi-bin/php.cgi
That's one of those errors that could mean a number of things. A good place to start might be the Apache documentation on the subject of CGI.
Also, do .htaccess files have to be created for each and every subdirectory under that domain?
Your .htaccess file will affect the directory it's in and any directories below it. So one in the root directory of your site will affect the entire site. You can override directives in the root-level .htaccess on a per-subdirectory basis by including another .htaccess file in whatever directory you want to be handled differently.
Testing out /home/user/sub1.mydom.com/test/phpinfo.php gives a "404 page not found" so it isn't even parsing as php.
If your PHP isn't being parsed, you'll just see the code output to your browser, you won't get a "not found" error. If you're getting 404 errors where you don't expect them, check your error log again to see what the server is looking for. Note that URL rewriting mistakes can cause unexpected 404 errors, so check that too if you're doing any.
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