Subdivide Problem?

Hi, im making a modular combat map and im using the half life 2:death match hammer configuration. Im trying to get a pillar that in the middle its circular and at the tops it slowly turns in a square for floor/cieling, i followed a tutorial where you make 3 boxs 64x64 on top of eachother and then ctrl+select them all then create a displacement. I made the power 3(ive tryed 2, 3, and 4 now.) and then i click subdivide while selecting all of them, but what comes out is like this.

http://img39.imageshack.us/img39/8630/whatr.png

Don’t make the internal faces displacements. Destroy all of the faces except the external ones.