Re: How to AutoActivate member blog by user name and retrofit old members with blog?
So, your question is really a WPMU question. You should try asking the question on a WPMU support site as it will likely get more response than here.
As for the blog thing – you currently have users with no blogs. If you create a new blog for every user then what default content are you going to put on that blog for the users who have no interest in the blog? Are you going to leave the default Welcome to WP post with the comment from Mr WordPress? As a user, I’d be annoyed by that if there wasn’t some way for me to delete the blog. Oh, yeah, there is a way – don’t automatically create a blog for a user that’s not interested. 
But anyhoo, I assume you have asked your user base and this is what they all want so do what you need to do.
