At least in Mac OS X v10.5 (and I think 10.4 as well, but I don't remember for sure) the approach you're thinking of will work: just use System Prefs to create a new user with the same short name, and it'll ask if you want to use the existing home folder. If you say yes, it builds the new account, and chowns the home folder to the new user. (Mind you: making a backup first is almost always a good idea, especially when acting on the advice of some random joker on the internet...)
There are a few limitations: if the new user's password isn't the same as the old one, the user's login keychain won't automatically unlock when they log in (you can change this in Keychain Access). Also, the new user won't have their Public and Sites folders set up for file and web sharing, respectively (if you care, clone & adjust some other user's config files in /var/db/dslocal/nodes/Default/config/SharePoints/ and /etc/apache2/users/).