--- a/mercurial/merge.py	Thu May 03 17:24:43 2007 -0500
+++ b/mercurial/merge.py	Thu May 03 17:24:43 2007 -0500
@@ -205,11 +205,14 @@
         elif dsrc in dirmove and dirmove[dsrc] != ddst:
             # files from the same directory moved to two different places
             invalid[dsrc] = True
-            del dirmove[dsrc]
         else:
             # looks good so far
             dirmove[dsrc + "/"] = ddst + "/"
 
+    for i in invalid:
+        if i in dirmove:
+            del dirmove[i]
+
     del d1, d2, invalid
 
     if not dirmove: