As far as I can tell, the only way to add a Home link through the WP3 menu system is to add a custom link that points to /. While this works, the resulting link doesn't recognize the a:active event, so highlighting doesn't work properly. Does anyone know a way to make this work?

This is not a theme question. The new WordPress menu system is all WordPress. I also found out that to have a HOME menu item I pointed it to 'http://mydomain.com'

If you want to explore this more, you might want search or post a question at wordpress.org