I wonder if this is more common today (turning or rather extending a short story into a novel), given that short story collections are so much less commercial than novels. This came to mind because I happen to be reading two novels that fall into this category: Thomas Mann's Felix Krull and Max Apple's The Propheteers. One might argue that Kafka's Amerika, which I also just read, falls into this category, since he was relatively pleased with the opening chapter, The Stoker (it actually is one of the relatively few things he published during his life). Though one might argue that he had always considered this part of a larger work, which he eventually abandoned. Of course, there are other odd hybrids, such as when the New Yorker or the Atlantic Monthly publish excerpts from novels that could be read on their own but could be seen as works in progress. For instance, I couldn't force myself to finish Franzen's The Corrections, though many people feel the short story (or even novella) "Chez Lambert" published in the Paris Review is more successful, or at least more succinct. I'll try to get to that one of these days.
Actually, as I was checking up on the Franzen details, I stumbled across this cool list. I should have remembered Mrs. Dalloway, since I've actually read Mrs. Dalloway's Party, which contains the original short story and some related stories.
Anyway, one interesting question is if the short story serves as a seed for the later novel, and there are subtle (or even significant) changes, such as apparently occurred with NoViolet Bulawayo's Hitting Budapest. Or indeed, if the text is repeated word for word, as with Mrs. Dalloway in Bond Street and Felix Krull (at least for the first several pages -- I haven't compared the ending of the short story to the novel yet). I do know that some people wondered if Mann was going to continue Felix Krull's life-story (before he himself died) or if he considered it a completed work.
I've mentioned a few times before how a character from a short story in Vanderhaege's Man Descending got his own novel -- My Present Age, so I won't dwell on that, other than to say I'll have to find some time to read these again.
It took a trip to Goodreads to remind myself that Max Apple's "The Oranging of America" was about Howard Johnson restaurants (they all used to have orange roofs) and thus there was a direct link to The Propheteers, where the trio (Howard Johnson, his secretary and his driver) are trying to grab some land in Florida in time to get a piece of the Disneyworld action. I don't remember the story well enough to know if it is repeated word-for-word in the novel or if it is a different part of their (very fictional) biography. I'll try to grab a copy of The Oranging of America out of Robarts this week. I might even tackle The Jew of Home Depot (his recent collection of short stories). And just possibly T.C. Boyle's The Road to Wellville, which seems somewhat akin to The Propheteers. As always, there is just too much to read!
Edit (7/24): I did make a short trip to Robarts (getting fairly wet in the process), and I picked up The Oranging of America. While there are some very slight differences, the title story is indeed Chapter 1 of The Propheteers.