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Here is exactly what happened. Before I started seo work for a client, the previous seo had installed 5 mirror sites, some had links to them. When I first came on board I deleted the content and uploaded a 301 redirect to the main site.
This worked for about 4 months.
The the site dropped well over 100 places in google.
The reason: Google brought back had the old cached mirror copies and applied a duplicate content penalty.
It has taken eight weeks, but it seems we are now cemented back at number 1.
I hope that helps anyone else who is suffering from a similar penalty that they don't deserve.
Ironically it was the 301 that got me penalized in the first place.
Google bringing back cached copies from the mirrors was probably a temporary roll-back.
Luke, your "penalty" was probably more a result of Google not passing link pop to your new pages via a 301. Once those "new" pages are thoroughly indexed and have some link pop of their own, they will probably rank well (assuming they are SEO'd akin to the original pages).