In a situation like that, I'd be inclined to create a completely new user, then deal with adding an old user, post-install. You've got a much easier time testing how things will behave when working with a running system. And having a new, spare, user logon to do any debugging on a system is very handy, anyway.
But I can't imagine a setup deleting an already existing homespace, it'd be a really dumb way of handling user accounts. Having said that, being asked to "create a home directory" is a bit odd, too. And I can imagine the possibility of setting up a new user in a prior user's files might have the chance of installing a few default files over the top of existing ones, ones that might have been customized.
All that sort of things goes to show why it can be useful to set up a completely different user, then experiment with the account editor on a running system, rather than one that's in the process of installing.
You've got more chance to poke around and try things, without facing the prospect of the install doing something you don't like, without finding out until it's too late. Or having to restart the install several times
over, trying out different options.
