Permalink problem with site in sub-directory!

I have a primary domain http://www.namastenow.com and another one that’s installed as a sub-directory on the primary one. This one is called http://www.thelifepurposecoach.com.

My problem is that when I specify the Blog address under General Settings to: http://thelifepurposecoach.com instead of the default which is http://namastenow.com/thelifepurposecoach

Then only the default Permalink structure works: http://thelifepurposecoach.com/?p=123

If I try anything else I start getting 404s on the other pages.

Can you help? Thanks!