1. Make sure that all of your users are defined in the server's shared Open Directory LDAP domain. Ensure that you have created mounts for the home directory share points and that each user actually has a network home.
Test this easily by connecting to the server via AFP as one of the users. The user's home should be presented along with other approved share points.

2. Make sure that everything works for a network home. Make sure your clients are bound to the OD domain successfully; try logging in as a user, but do not create a mobile account if asked. Just see if you can log in to verify that the home can be found on the network. Continue if successful.
You should be greeted with a "blank" or default user home for the user. In other words, this procedure copies data from the client to the server for an initial sync of the user's real home data.

3. Make sure that you have any managed preferences for home sync defined in Workgroup Manager for the particular users, group of users, or computers/computer groups. I generally recommend defining home sync preferences at the computer group level, because that way you can ensure that mobile accounts and portable homes are only created on approved systems. So, add your computers to a computer group and manage home sync settings from there.
Be sure to enable mobile homes, and set synchronization options, then continue.

4. Back on the client - these steps will be repeated for each client system:

a. Log out of the local user account, and log in as another user who is a local administrator. If there's only one user account, you may need to use the Accounts preferences pane to create another local administrator account. You may choose to leave that local administrator account after you're finished, but you don't have to do so. You could delete it after you're finished and make the mobile account a local administrator.
For clarity with an example, let's give the user account whom you're converting from local to mobile a name: sally_jones.

b. Log in as the second (or temporary) local admin. Issue the following commands using Terminal:
The last command is only necessary if the local sally_jones was once a mobile account or you've attempted this before. Issuing the commands if not necessary won't hurt anything. They simply delete the folders that store sync state information (FileSync is for Leopard, Mirrors for Tiger).

c. Use the Accounts pane of System Preferences to delete the local sally_jones' account. If asked about the user's home, tell Mac OS X to leave it alone.

d. Log out, then log in using the server-side sally_jones account. Tell Mac OS X that you want to create a mobile account, and let the system perform its first sync (which should be quick because sally_jones has an empty server-side home). This first sync won't move any of sally_jones' real home data; rather it should just copy the "blank" or default home from the server to the client.

e. Log out, then log back in as the second/temporary local admin. Issue the following commands in Terminal:
Move the sync state data folder to sally's home that you saved:
Delete the local copy of the "blank"/default home for sally:
Move the saved real home data to the proper place:
And change permissions for the home. This may seem redundant because sally_jones is being replaced by herself, but the local sally_jones account may not have had the same UID and doesn't have the same UUID as the sally_jones in Open Directory:
For best performance, reset the permissions to Apple home directory defaults - this is optional:
f. If sally_jones needs to be a local administrator for "her" computer, open the Accounts preference pane and make her one.

g. Log out, then log in as sally_jones. You should receive a warning stating that there's a mismatch between the server-side home (Network Home) and local home (Mobile Home). Tell the server that the most recent files are on the Mobile Home, and wait for the first real initial synchronization. If you're not alerted upon login, wait and log out of sally_jones. You should be alerted then.