I think Lowell's advice was spot-on. I would definitely go the self-employed route. I started working on my own a couple years ago and wish I had done so earlier. You do pay all of your social security taxes but there are some good tax benefits. In the end I made more and paid a smaller % in taxes (e.g. getting to write-off travel, your home office, etc.) An 8-hour a week gig is perfect if you have a full time job because you get the best of both worlds: paid vacation from one, tax benefits from the other. Business insurance is cheap BTW.
As Lowell said, don't let them pay you what they did before. They know they're not paying your insurance, Social security - that's good for like 15-20% right there. I know that companies typically pay double what a w-2 contractor makes so keep that in mind.
It's worth noting that, though most people talk about "1099" in some cases they are talking about an S-Corp. I think going the S-Corp route is preferable though it is a little more work. I included a good link that I found to be helpful when I started.
-- Itzik Ben-Gan 2001