Is it possible to restore a user's account and home folder from a compressed disk image of the Macintosh HD? The image was created using Disk Utility.
Yes if the compressed disk image looks like a whole mac with enough of /System and /Applications as well as /Users/foo then Migration Assistant will treat that mounted image as a viable source and you can pull just the user account and data even if the rest of the information is incomplete.
You can also finder copy the folder into /Users once the image is mounted. D on't overwrite an existing short name, just drop the files in a new folder and don't worry about ownership as long as you can copy all the files from the image. Once the files are copied, create a new account to match the short name of the user folder and the OS will correct the permissions/ACL on the folder and enable that user as specified.
You may have issues if ACL are deeply embedded or you have non-standard permissions set, but generally I have not had any issues doing this for some time over many releases of Mac OS. Finder seems to drop the files as readable enough or warn you that some files on the image are unreadable so you can take further action if needed.