~username URLs are concidered "newbie" URLs.
By whom? This is the standard format for user account web space on any Apache server. Look around a little and you'll actually notice that, if anything, the "newbies" tend to register domains while the older, more experienced and technical users often keep their tilde-username sites. Yes, this is a gross generalization, but your statement is absurd.
If you got a domain account, use a domain name. Yes, that means a lot of file changing, but it's the proper way of doing it.
If anything, the aforementioned user space is the "proper" way to host user sites, not registering an entirely new domain name or creating a subdomain for them.
To the original poster: How many users are we talking about here? I've done it for a few people, including myself.
1. Create user accounts ((S)FTP or shell, depending on what level of access their old accounts have) for each user you want to migrate. If your lucky, their usernames will be available. All but one of mine were.
2. Via SSH, create a web directory in their home directory. Name it public_html if you want, but it can really be anything.
3. Back in the panel, create aliases for each user. Choose the appropriate domain in the drop-down list and make the URL path "~username" (without the quotes, obviously). On the next page, choose the user from the list and complete the path to the web directory you gave them, "public_html" or whatever. Note that the ~username alias should be their old username; it does not need to match the username on the DH system as long as it's pointing to the right place.
That's it, tilde sites will now work. You may experience some CGI brokenness doing this. I didn't run into it with my users, but the panel will warn you about it.
Another method to provide userspace would be to follow steps one and two above, then create a /users subdirectory on your domain. In there, create symlinks for each user to their public_html folder. Then, in the .htaccess file for the domain, use mod_rewrite to rewrite /~username to /users/username.