How to Rewrite WPMU Subdomain URI?

I have a WPMU usin subdomains.

What's the best way to rewrite #1 to become #2? I assume this is called masking right?

#1: http://username.domain.com/SLUG
#2: http://domain2.com/username

domain2.com would be an add-on domain on my server.

Also, can you correct me if I'm wrong but assuming the rewrite is possible... anything on domain2.com/username would not be SEO-optimized b/c it's a mask correct?

What's the best way to have http://domain2.com/username be functional and still remain SEO optimization?