You are correct. Enter the amount from your 1099-misc, in the W-2 section box 1, 3 and 5, and leave all withholding blank. On the following screen titled, Do any of the uncommon situations apply? you can select the box to indicate that you did not receive a W-2.
Follow the prompts and explain what happened. The benefit of this is that the IRS will go after the company for your other half of social security and medicare taxes.
What you might want to do before doing this, is tell your ex-employer that you are going to do this. It is best to get it fixed without the IRS involvement (personally). That way they know it's coming and they may be more inclined to fix it now.
