George described the _right_ way to do this. If you have 2 insulated conductor and a grounding conductor, then you can feed a 120V subpanel. This means one insulated 'hot' conductor, one insulated 'grounded' conductor, and one bare equipment grounding conductor.
Just to make it very explicit: if this is a 120/240V panel, where the bare conductor is being used as the grounded current carrying conductor, then you have clear violations of code.
-Jon
