Sorry, but that is the only way I could see that working. You could place your site in a different directory…say, www for the main site. That way when someone comes to your site via the standard address, just write a index.php file to load the other page. This way all your files will be in the www directory.
Are you just making them able to upload their own files into the directory or does it all go to a single PHP file that looks for their username in a database? If you are just letting them upload files and such, then the PHP create/delete folder thing would work. Otherwise, you have a total different problem.