VLocke: What is the best pratice for keeping the Admin user in place but inactivating it from the current user's list and activating the new limited user's role?
There would be no way to make the admin user inactive on an account - this is a special user and needs to be enabled at all times to make changes to the account.
VLocke: s there a way to set up the Admin as a portal user?
No, the admin user would always be your first named (paid) licence. In the scenario you described you would need to have at least 2 licences enabled on the account.
~C