I bought this house ~6 months ago and I noticed then that the caulk around this tub was not installed properly. I just barely got around to opening it up and seeing what was underneath and I found very moist wood that breaks away very easily. It looks like the sub floor is destroyed. Am I right about that? What should my next steps be?
Yes, it appears that you need a need new sub-flooring. Once the old tub is removed clear out all the old rotted material down to solid wood. If necessary let the area dry for a day or so. Then as necessary fill voids and holes with shims and filler strips. Overlay the entire area with new quality heavy sub-flooring. Then set the new tub.