renaming a file into a directory causes a pull error on older repos

So I had heard from someone else that this was a problem with git, but brushed it off as something that no one "normal" would ever run into. Well, I did tonight.

The problem:
  If you turn a file in a repository into a directory, and place files
  in that dir and commit it, any other person who had that repo cloned
  somewhere else will get an error when they try to pull and update
  their version.

The error for me is:
	fatal: Entry 'stats/results-18-22.txt' would be overwritten by merge. Cannot merge.
	Merge with strategy recursive failed.

I had turned the file "stats" into a directory.

So, any thoughts as to how to solve this for real? It's trivial to just blow away this repo and clone it again, which will solve the issue for now, but it seems like this might be good to get fixed...

thanks,

greg k-h