I am adding subscriptions to a site using Paypal IPN which works very well, I can successfully create a new subscription and verify it. The subscription has a two week free
The thread posted by Chris has been updated recently.
Sometime in 2010, PayPal stopped using subscr_eot when a user cancelled their account. After a number of complaints, they reinstated this, but took 6 months to do so. All this means is that you can once again handle your subscription notifications as described by Peter in the accepted answer.
From a PayPal representative:
subscr_cancel means the profile is canceled and there will not be future payments. However, if the buyer has already paid for the current billing cycle as they are charged up-front, then you can use the subscr_eot to terminate the profile.
Still unsure what happens in the event of multiple failed payment attempts, however. PayPal documentation at the moment is terrible.