Honestly if Conor were alive, he'd tell you that you need to setup your test site using a sub-domain and not just a simple folder off the root.. It will look like this:
Live site: http://yourdomain.com
Test Site: http://testsite.yourdomain.com
Ask your host for help in setting up a subdomain to point at your test site's folder if you don't know how to do this -- or Google it. This way your test site will behave like a top level domain and your production site's .htaccess SHOULD work on your test site too.. It will make code migrations MUCH easier too..
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