If I change the name of the directories from www.widget.com/1keyword-2keyword/1keyword-2keyword.htm to www.widget.com/1keyword-2keyword.htm could I be penalised for duplicate content if I keep both until google indexes the new ones?
I doubt it especially since it's on the same domain. If it was on 2 different domains then yes you probably would get penalized. I think most likely it will ignore the duplicate page but then how do you tell it which one to ignore? Use permanent redirects but thats a whole nother topic.