Hi theDaveB,
Well, I think there could be several causes - it is always hard to tell without lots of work testing and intimate knowledge of the domains/sites in question.
However, here are a couple of thoughts you could look into:
1) Duplicate Content. Obviously if you have two identical sites as you imply, this is a problem for Google and it will be penalising one of the sites for duplicate content. It seems Google may deem the higher ranking domain as the primary source of the content. Which domain is older? Which was crawled first? Have they always been exact duplicates?
2) You mention you bought some backlink packages. Depending on the source and quality of these you may be getting penalised for spammy links. Maybe do some link analysis and see what shows up.
3) Not as likely as the others, but does the phrase 'yellow widgets' appear in one domain and not in the other?
I hope some of these ideas help you find the source of the problem.
I would add that you need to carefully decide if there is strong reason to maintain two duplicate sites. I'm assuming you chose to have two sites intentionally instead of redirecting one domain to another, but if it isn't working then you maybe need to reevaluate?
-Tom
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