Completely remove user account and create another with same name in Windows 7

This got nothing to do with the username. Whenever the profile cannot be written to, usually due to permission issues, Windows (more to the point the logon provider/winlogon.exe) will automagically create a new folder for you. You could even provoke this. This also seems (or seemed) to happen when a profile hive could not be unloaded or so.

So:

1. Make sure the permissions are correct (icacls and friends, run as admin)
2. Go to HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Windows NT\CurrentVersion\ProfileList and find the SID of your user (Sysinternals has a tool to find that) and in the subkey with the SID (will usually end in -1000 and higher on non-domain machines) find the value ProfileImagePath and correct it to whatever you want it to point to.
3. Log off and back in ...

This has been the same principle ever since NT4. Possible there is a GUI method to achieve the same these days ...