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If the amount of widgetspace.com's content is large I would funnel the internal linking to the new content so that it doesn't drain too much PR away from the rest of greatwidgets.com until you can get the inbound links from widgetspace pointed to greatwidgets. I know the 301 is supposed to handle that, but it doesn't seem to initially.

I'm a bit confused by your reply, -

First, to clarify, these two sites have been completely independent of each other. To date there never has been a link from either site to the other. Each site has 100% unique content about the topic 'widgets.' There is no overlap of content.

You wrote 'It would be disastrous to move content from greatwidgets.com to widgetspace.com.' I think you were saying that it would be a disaster to remove content from the older site that has been ranking since 1996. If that's what you mean I agree. If you meant something else, please elaborate.

My idea was to keep intact (unchanged) the folder and navigation structure of the widgetspace site after the move. In other words, there will be no changes to the subfolder names and urls after they are placed on the greatwidgets server. The only change I was thinking of making to the widgetspace pages after they are moved is to place a link on each page to the main home page of the now larger site (i.e., a link to the hp of greatwidgets.com).

There are 500 pages of content on the newer site (widgetspace). You wrote "I would funnel the internal linking to the new content so that it doesn't drain too much PR away from the rest of greatwidgets.com until you can get the inbound links from widgetspace pointed to greatwidgets."

Anything else I should be concerned about relating to linking from the older site home page (greatwidgets) back to the new subfolder (widgetspace)?

For the other part, this is what I meant (and its a giant generalization).