Last year's excess Roth contribution for the year before

[Guest MikeInMass]

In March of 2008, I contributed $4000 to a Roth IRA for tax year 2007.

I later realized that about $3000 was an excess contribution due to AGI within the phase out range.

I did not contribute for 2008 as AGI was too high.

Suddenly it is 2009, and I am filing taxes for 2008.

My custodian is often incompetent, so I am asking here.

What is my best course of action to correct the excess contribution?

Can I recharacterize the 2007 contribution made in March 2008 as $1000 eligible 2007 contribution,

plus a $3000 ineligible 2008 contribution, and withdraw the $3000 before filing 2008 taxes on April 15th, 2009?

Do I need to file Form 5329?

FWIW I am not yet 59 1/2, and the value of the IRA has declined steadily since 2007.

Thanks for your kind help!