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It could be your site is hacked and malware added on your site code. I had the similar attack before. It takes away your search engine traffic to another site (it doesn't redirect you if you are logged in so sometime people never notice it).

http://sitecheck.sucuri.net/results/funeralhomeoptions.com/

You should check index.php file or header.php and ... in your template folder and  .htaccess files as well.

1. should be better if you install forum in subdomain

2. no it is not but you should strive to get rank for subdomain as well as main domain .

I recommend you to install a better forum like VBulletin or ... .

If you have time , follow below step to remove your bad links

1-Check your backlinks in Webmaster Tools

2-Look for backlinks from outside your country

3-Look for multiple backlinks from same website

4-Check homepage of site linking to you

5-Check most common anchor text used

6-Check pages your links are on

7-Create spreadsheet of all sites linking to you

8-Check Serps results of sites linking to you

9-Find contact details of sites providing bad backlinks

10-Email them and ask for your links to be removed

Hope it will be helped you.