Panther
is 10.3.x
My earlier post told you what the "Delete Immediately" button did.
2)
If you choose "Delete Immediately", then their home directory (/Users/foo/) is immediately deleted.
I'm sorry, I guess that wasn't specific enough. By "their home directory is immediately deleted", I meant everything in the user's home directory is immediately deleted, not saved. You should have been clicking the "OK" button.
Renaming a shortname of an account is always a bad idea if you don't know what you're doing.
Sounds like what you need is a backup solution. That way you could have easily recovered from all this. Cloning your boot disk to an external firewire hard drive is an inexpensive backup solution. Using a low-cost product like
Carbon Copy Cloner or
SuperDuper, you can automate a backup that will copy all data from your boot device to another device (firewire drives might be easiest for you). This copy will be bootable, so if everything on your boot device gets fried, you can always fall back to the copy. Naturally, this system isn't infallible and you should do some research first, but everyone needs a backup solution.