Jim Munro: The new directory would already have DNS, right? :).
I would not forget +'s first suggestion and 301 redirect page by page from the subdomain to the subfolder. To lessen the pain you could consider keeping the subdomain up for a while and rel=canonical for a few months from the subdomain to the equivalent page on the subfolder. Once the traffic ebbs away, then 301.
Verify your sub-domain in Google Webmaster Tools. After setting up the 301's, look at crawl >> crawl errors for 404. Because you will always forget some 301's and by monitoring the 404's on the old site you can fix it asap. ;