Definitely panda, not penguin.
Summing up my research, panda is purely algorithmic. Panda is about quality content and it tries to downgrade poor content. A panda penalty is applied to the site as a whole. Poor pages can cause the whole site to suffer.
The site in question has about 700 pages. All are "useful" to visitors, but I would estimate a few hundred pages are thin content, or have some degree of overlapping content.
If these add no useful info to visitors they will be removed.
But let's say there are still a hundred or more pages which still have useful info on them.
Will moving these pages to a subdomain of the main site stop the main site from being panda penalised?
In other words, from a panda point of view, does google think subdomains are separate sites?
In other words, if the main site only has quality content because the thinner stuff is moved to subdomains, would the main site recover?