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Always communicate with your client. If they want to go back to the blackhat firm, explain that the effects of blackhat techniques may very well be temporal and after the next Panda, BlackBear, Gorilla or whatever update they can be easily thrown back to the end of search results. And this "update" can happen anytime, maybe tomorrow maybe only in a year. If they're in for the long term, they have to plan for more than a year... Solid results take time, but they also stand the test of time!

I'd only move it to a subdirectory if I could somehow link it (or integrate it to some level) from the main domain/site as well. If not, you could keep it on the new domain and link to that domain from the old one with a proper anchor to give it a boost, and since it's topic related it will indeed give it a boost.

I think this is just a typical "google dance". It's testing how the searchers react to your content, and is deciding where to put it in SERPs. This happens with new pages all the time. (We manage over 500 websites so I know this from experience.) Did you build any backlinks to these content pages in the meantime?