So after some hacking, I actually found a (IMO rather dirty) hack that actually makes things work for me, although with a minor modification: I don't use bibunits, but rather chapterbib.
The basic reason why they couldn't work together, is that they redefine a common set of commands. Hence the basic idea of my solution: make sure they are never, say 'active', simultaneously. For future reference, let me spill out my solution and the limitations (I'm aware of). All the following should be put in the header of your document.
The solution is designed for a setup with one main file, that uses \include to include a file for each chapter. The aim is to 'switch off' the chapterbib package before including a chapterfile that needs to have separate bibliographies. Notice that this means that this particular chapterfile can never have the bare \cite command. Any citation must be part of some subset that multibib deals with
(the reason is that when 'switching off' the chapterbib package, the \cite command works in the standard way, meaning that the \bibliography command corresponding to any \cite command in the chapterfile is expected in the main file.... hopefully this rather long explanation makes sense.. :P)
Step 1: create a backup of the commands that will be overwritten by loading multibib/chapterbib:
\makeatletter
\let\orig@bibliography\bibliography
\let\orig@thebibliography\thebibliography
\let\orig@include\include
\let\orig@cite\cite
\let\orig@nocite\nocite
\let\orig@bibliographystyle\bibliographystyle
\makeatother
Step 2: load multibib and define the required bibliography groups you need. Let me remind you again, that later on chapterbib will be 'switched off' whenever we make multibib 'active'. The consequence is that each citation inside a chapterfile that is processed by multibib must be part of some group, ie you can only use \citeXXX commands for groups you created using \newcites{XXX}{Some title}. So e.g. one could have:
\usepackage{multibib}
\newcites{main}{\refname}
\newcites{man}{Manuscripts}
\newcites{com}{Complete Works}
Step 3: the multibib package actually only rewrites the \bibliography and \thebibliography command. Next store these rewritten versions and move back to the original versions:
\makeatletter
\let\mbb@bibliography\bibliography
\let\mbb@thebibliography\thebibliography
\let\bibliography\orig@bibliography
\let\thebibliography\orig@thebibliography
\makeatother
Step 4: as far as the chapterbib package is concerned, it is as if the multibib was never loaded, so we can safely load the former package and store the changes it made:
\usepackage{chapterbib}
\makeatletter
\let\cpb@bibliography\bibliography
\let\cpb@thebibliography\thebibliography
\let\cpb@bibliographystyle\bibliographystyle
\let\cpb@include\include
\let\cpb@cite\cite
\let\cpb@nocite\nocite
Step 5: this step is at your own convenience and mainly safes typing - it entails creating a set of macros that allow easily switching between 'chapterbib-mode' and 'multibib-mode':
\def\bibmulti{% switch to multibib-mode
\let\bibliography\mbb@bibliography%
\let\thebibliography\mbb@thebibliography%
\let\bibliographystyle\orig@bibliographystyle%
\let\include\orig@include%
\let\cite\orig@cite%
\let\nocite\orig@nocite%
}
\def\bibchapter{% switch to 'chapterbib'-mode
\let\bibliography\cpb@bibliography
\let\thebibliography\cpb@thebibliography
\let\bibliographystyle\cpb@bibliographystyle
\let\include\cpb@include
\let\cite\cpb@cite
\let\nocite\cpb@nocite
}
\makeatother
Towards your document: so how to use all this? This is what your 'main' file could look like using the bibmulti and bibchapter macros:
\documentclass{article} % or whatever class you want
\begin{document}
\include{chapter1}
\include{chapter2}
\bibmulti
\include{chapter3}
\bibchapter
\include{chapter4}
\end{document}
This assumes the above described header, where indeed chapterbib is loaded second. That package will kick in for the first two chapters, each of which should have commands:
\bibliographystyle{your_favourite_style}
\bibliography{your_bibtex_database}
Then, just before including chapter three, we 'switch off' chapterbib and 'switch on' multibib; this file should use the special citation commands created by multibib, e.g.:
\citemain{ref1}
\citemain{ref2}
\citeman{manuscript1}
% etc...
% etc...
\bibliographystylemain{style_for_main}
\bibliographymain{main_references}
\bibliographystyleman{style_for_manuscripts}
\bibliographyman{manuscript_references}
\nocitecom{*}
\bibliographystylecom{style_for_com}
\bibliographycom{complete_works_references}
Then, after chapter 3 was processed, the bibchapter macro again switches to using the chapterbib version of the citation macros. So when chapter 4 is included, we're back to the original situation and the chapterbib package will again make sure that a separate reference list is created for that chapter.
I hope this explains covers enough for others. Maybe for reference I should mention that after TeXing this document, you'll need to run bibtex on the chapter files for chapters 1,2 and 4 (chapterbib writes citations inside the '.aux' file for the separate chapters) and on the files main.aux, man.aux and com.aux (these are the files created by multibib)
Limitations
Each time you call \newcite, an element is pushed to the write-stack (I think). By using this setup you prevent having to do that for each chapter, but still if you have many chapters that need to be dealt with by multibib you'll likely still hit the limit of the write stack. In other words: this setup is designed for the case where the situation of multiple sets of references per chapter is rare (actually, in my particular case there is only one such chapter)
There may be other limitations I'm not aware of. I'm just a newbie at writing TeX for my LaTeX documents, so I really can't give guarantees about the applicability of this solution to other systems and related situations.
Best Answer
To get bibliographies at the subsection level (i.e. below sections) you should use
\usepackage[subsectionbib]{bibunits}not\usepackage[sectionbib]{bibunits}.