Using a blog to gain SEO for your site....potential problem though?

I know a blog is a good way to enhance the linkbacks and general exposure for your site.

But does the blog need to be on a completely DIFFERENT URL than your site?

Example: my site is a forum only site, blahblah.com. My blog is blahblah.com/blog and my forum at blahblah.com/forums (my main site url blahblah.com is redirected to the forums).

Does the link from my blog to my forums not really count b/c it's virtually on the same site???

Is it a good idea to go ahead and buy a separate domain and server to create a better link back quality?

It depends on the main purpose of the blog.

If the main purpose is to link from the blog to the forums for backlinks, the blog should be on a separate domain (or at least sub-domain).
But if the purpose is to use the blog itself to attract links that will eventually benefit the domain and the forums, it should be located in a subfolder, as you have already done.

I could be wrong here, but I would think the problem with setting up a blog on a new domain for the sole purpose of getting backlinks to your site would not necessarily help that much, at least right away, because that new domain doesn't have much authority.

However, if you already have the blog set up on your site (site.com/blog) and it has some good content/etc, is it possible to do a 301 redirect from that new domain so that you retain the authority of the blog?