Hello there,
I know this is way too old, but the same issue you faced happened to me when i switched from Windows 7 to Windows 10 (i skipped windows 8), and i managed to solve it, and thought of sharing the answer with every one, as this post show up in most searches for
this error.
I use my name as the account name for my Windows, and i use the same name with the Microsoft Live account, so when i started using my live account with windows 10 it automatically replaced my Windows account since they both were the same name.
Later i wanted to switch back to local account and use a local password separate from my Live account password, and when trying to switch to local account i tried to use my name for the account i got that "windows is already using that name" error,
and since i didn't want to create a new account with a new name i tried to find a work around, and it worked.
I simply went to my Live account and 'Edited' my Live account name (just added a number next to the name) and saved the changes then restarted my PC, and as i guessed my PC name automatically updated with the new name on the Live account.
Then i went with the steps of creating a local account using my name as normal, and this time it worked fine as this name was different than the 'edited' one on the Live account.
Once done and all back to normal i went back to the Live account and removed that number i added returning the name to how it was and saved the changes.
This way i got my old local account without losing any data and without having to create a new account.
I hope this helps anyone who (like me) might be frustrated be the way Microsoft choose to handle the Windows account.
Feel free to share this with any one who might be looking for an answer to the same problem.