You may remember these.
These funky socks, made not even a year ago for a friend, have fallen upon hard times. Look away if you must... this ain't pretty.
It's a horrible, horrible thing to have happen to a pair of hand-knit socks. (And it just happened to the one sock. Hopping much, V?) I knew I could fix it. I still had a small ball of the yarn left over, and I hied my hiney over to my LYS for some nylon blending thread, which I should have used in the first place. Apparently, 100% merino socks are ticking time-bombs for such behaviour. First, I checked in my knitting journal to find out what size needles I used. Then, I picked up a row of stitches on either side of the heel, making sure to pick up the same number on both sides.
I did this repair on DPN's but you could just as easily use circs. YMMV.
I now have a solid ring of stitches picked up around the offending (and offensive!) hole. Now, I cut away the fuzzy, frayed bits, to about three rows before the needles. I then pulled the yarn back until I had the live stitches on the needles.
From here, it's a simple matter of introducing the new yarn, held together with the nylon thread, and forming a short-row heel as if you were making a new sock. (I like the method in the Interweave Knits 2007 Summer edition, but once again, YMMV.) When your heel is done, be sure to knit one final row "in the round" (all around heel needles) to pull things all together.
From here, it's a simple matter of grafting the contents of top and bottom needles together. The finished heel:
Beside the original:
It's slightly darker and a bit cushier from the blending thread, and I have to say there's a distinct line on the inside from where the grafting was done, but aside from that, this sock is better than new. I'll re-heel the other sock while I have it... it's only a matter of time before it goes, too, if I leave it undone.