2. This leaves you with some funny little flaps from the crotch of the pants that you need to even up and cut off. Still, the fabric won't match up into a perfect seam but it seems to be a trend I've seen with jean skirts so I figured it was ok (see the note on the picture here and you'll understand what I mean).
4. For the ruffle, I cut off the existing hem from each leg of the lounge pants, ripped open one short seam on each and then attached the short ends together so i had one gigantic hem. It should look like the bottom of one leg of a massive pair of pants. I used pinking shears to finish off the top of the ruffle because I attached it to the top of the skirt and didn't want a raw edge to fray. You could also fold under the raw edge or, of course, attach the ruffle so that you don't see the raw edge at all. (With right sides together, match the raw edges of the ruffle and skirt and straight stitch around. Press seam towards hem.)
By pure coincidence, the pattern matches up fairly well in its skirt form. Hasta luego, wide-legged monsters. These directions are probably confusing, so feel free to email/comment with any questions.