In 2007, I switched jobs and my new employer gave me a $10,000 lump sum for relocation assistance. This money was listed on a 1099-Misc (Box 3 Other Income). It was not included my W-2 and Earnings Summary (not in Box 1 or Box 12 Code P).

I calculate that my tax deductible portion of the $10,000 is $6,500. Do I include the 1099-MISC on Form 1040 Line 21 (Other Income) and then deduct the Moving Expenses on Line 26 (and attach Form 3903)?

My problem is that Form 3903 Line 4 states "Enter the total amount your employer paid you for the expenses listed on lines 1 and 2 that is not included in box 1 of your Form W-2 (wages). This amount should be shown in box 12 of your Form W-2 with code P". Nothing is shown in Box 12 with a Code P.

My first approach is to report the $10,000 on the 1099-Misc on Line 21 as Income. Then adjust the Income by $6,500 deductible moving expenses in LIne 26.

Yes - I think your instinct is correct. The bit about reporting an amount from your W-2 box 12 code P is to ensure that you don't deduct expenses that your employer reimbursed you for - reimbursements with code P are non-taxable, and so would not be reported as income to you. But in your case the $10K from your employer is reported on 1099-MISC and is fully taxable to you, and so you can deduct your moving expenses.