Answer: Sounds like a good plan to me. Digging the soil will help loosen it and improve the drainage. You can dig in compost, and then sprinkle a little lime over the top of the bed. Keep the lime away from the azalea; dig it into the soil a bit and then cover with wood mulch. The lime will take a while to break down and sweeten the soil. In the meantime, the mulch will help moderate soil temperatures, slow evaporation and suppress weeds. If you can spread a little peat moss over the root area of the azalea and cover that with wood mulch, that should make your azalea happy, too.
Good luck with your garden!
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