That should work fine, I did something similar at http://genericdomainer.com/. I think I did the inverse, installing wordpress at the root and the store as a subdirectory, As for SEO, I can not attest too, since I have not worked the Blog as I should. But unique content always helps

I think Jorge blog maybe set up in a similar manner. http://www.ezaffiliatewebsitebuilder.com/blog/
I think the trick will is finding the right wordpress theme/template; with easy linking structure. I think the one I use was one of the superadsense templates that the they are always giving away. Is it very doable am sure the EZ family will assist where ever possible.

KG