Please avoid multiple CMS installations in nested directory structures.
.htaccess directives inherit their rules to subdirectories which most likely causes your issues.
Try to configure the hosts in a way that the main domain's (www / no subdomain) document root points to a seperate directory on the webhost, similar to the festival subdomain.
/public_html /www/[main site Typesetter installation] /festival/[festival siteTypesetter installation]
I myself always organize my webspaces like that, includig directories for the main domains.
/public_html /domain1.com /www /subdomain1 /subdomain2 /domain2.net /www /subdomain1 [etc.]
edit: once the host config is changed you can simply move the main site installation to it's new directory.