Website Duplication in Sub-Directory
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Yes, doing that is cheating, though not inherently "black-hat". However, it's also foolish to do that for a number of reasons: one of which is that you're putting an entire website in a sub-folder of the actual website. Another is that even with the canonization, they're forcing competition between these pages/sites. Even if they're not being penalized for it now, Google, Bing, and Yahoo will all eventually catch it and that'll be the end for them.
A general rule: if you have to question the morality of something, it's probably wrong.