Sub Floor
Sub floor material can depend on what type of floor is going to be installed on top of it, and the joist spacing.
Typically if the joists are 16" on center (OC) or less, you can use 5/8" tongue and groove plywood glued and screwed to the joists. larger joist spacing calls for 3/4" tongue and groove plywood, again glued and screwed to the joists.
If the flooring material of choice is a heavy tile, you'll want to use 3/4" tongue and groove plywood even with 16" OC joists.
Underlayment
Depending on what type of floor covering you've chosen, an underlayment may also be necessary.
If you are planning on installing carpet, no extra materials are required.
If you plan to install hardwood flooring, you can use felt or rosin paper as an underlayment (though not all installers use it).
If you are installing laminate flooring, you should use a foam underlayment.
If you are going to install tile, you'll want to use a concrete board or similar material on top of the sub floor.
If you want to install vinyl or fiberglass sheeting, you should use 1/4" Lauan as an underlayment.
I think your contractor is right on the money, it's way easier to approach the problem from above than below, and trying to fix it from below would be very difficult to do properly. Floors generally creak because the floor material isn't strongly connected to the joists, to when you step the joists rub against the subflooring , and the subflooring segments rub against each other. Also, older flooring tends to weaken and bow, adding to the creaking. The right way to attack this is to pull up the old subfloor and put down new subfloor using screws into the joists. This will make a strong floor that is less likely to bow in the future.
If you tried to attack this from below you'd have to pull your perfectly good ceiling down, attempt to fix the creaking (which probably wouldn't work anyway), then put up a new ceiling. You'd have to pull down your light fixtures, repaint the entire room, etc. So you'd spend a lot of money to replace a ceiling that doesn't need fixing, spending more money, and be unlikely to fix the creaking.
Having your floor up gives you an opportunity to do a few things:
- Inspect the joists: have them take a good look at the condition and rectify any problems. Don't skimp on this, money spent now prevents a vast amount of money spent later.
- Electrical work: While you have your floor up is an ideal time to replace old wiring, add new outlets or switches, and put new lighting in the floor below. Want spotlights in the room below? Do it while the floor is up.
- Add insulation and/or soundproofing: It's much easier to lay insulation and soundproofing down into a floor cavity rather than up into a ceiling cavity and you may as well while the space is exposed. Just make sure that whatever materials you have installed have a good fire rating!
I definitely agree with your contractor on this one, don't pull down your ceiling to fix your floor, just fix your floor!
Best Answer
Meta-answer: (Not an answer, but pointers to where you can find one)
Find the year of construction.
Find a builder that was active during that era.
Show him your picture.
That said: It looks like you have damage or rot on one board. I'm puzzled by the light streak toward the bottom (picture) of many of the boards.
Some softwoods are suitable for flooring. Larch heartwood works well, as does douglas fir, once it's about 5 years old. Some hardwoods do not work well, either because they are too soft, or don't sand well.
You can check for hardness by getting a sample of wooden flooring from a floor store, and see what height you have to drop a medium size rock on it to produce a dent in the wood. Now repeat that test with your uncovered floor. (The actual test is with a spring powered thingy that you snap, and then measure the depth of the ding.)
If the wood is porous you can improve the hardness somewhat with WEST Wet Epoxy Saturation Technology. This uses a slow cure epoxy that soaks into the pores. Normally used as a boat construction technique along with thin layers of fiberglass or kevlar.