Because Marketo doesn't really care if the person is a Contact or Lead in Salesforce, I decided it wasn't really important to convert it back to a lead in Salesforce. To ensure nurturing of Contacts (converted leads) from lost deals, I am looking at the customer status of the Account the contact is tied to. For example, I have 3 Account statuses:
1. Prospect (no won opportunities)
2. Current customer (current contract)
3. Past customer (won opportunity, but no current contract)
The contact is tied to the account so I can then associate that account status with the contact and put them in the correct nurture campaign. For example, a lost deal contact is flagged as "prospect" and goes into the prospect campaign.
The alternative is to have a new lead created when a contact needs to be worked again and then merge it with the contact record when converted, but I thought that would be too messy.
Any other ideas on how to solve this issue?
We have the exact same issue and I currently do the same as you ended up doing, leaving the contacts under the account and flagging that account as "prospect re-engage" meaning we had an oppty, lost it and therefore will continue to nurture these contacts as if they were leads.