Welcome to the Q&A Forum

If the external site links to what Google considers a 'bad neighbourhood', then yes, the external site linking to the doorway page might get penalised but it isn't normally an instant penalty, but after Google figures it out through their various algorithms.

My logic is that the content isn't that bad, and has potential for improvement. It currently drives 30% of organic traffic to the site and accounts for 75% of the total urls. At the moment, we just want to get out from under the Panda penalty, and work on improving the content in the future. Moving it to its own url seems like the best option until can improve it later.

the only way to inoculate the main domain if you go with a subdomain is if the topical focus of each is very different.  If they're very similar, it's much more difficult to pull off.  Of course if they're different enough, that's valid reason to not interlink. If they're totally related, and there's no interlinking, it could be perceived as attempting to stuff search results with multiple entries.

Hey Michelle, Short answer is contextual link. Regards, Guillaume Voyer.

Thank you for the reply. I should add that this 75% of the content is an application (i.e. it is all the same). So the traffic is about the same on all of the pages. We need to choose between 404-ing the content or putting it on a subdomain. Do you know if having thin content on a subdomain will affect the original domain? I've been searching for a while, but can't seem to find anything concrete about this. Thanks!