Reo-Coker's days at Villa looked numbered only a few months ago after a training ground bust-up with previous manager Martin O'Neill.
But the former England Under-21 skipper has flourished under Houllier and has been given the captaincy during Stiliyan Petrov's absence through injury.
Reo-Coker is in the final year of his contract and Houllier has made it clear he wants him to remain on a long-term basis.
Sidwell said: "Nigel has done very well. He is a good player. He has shown that before. That is why he has come to this club.
"I remember his first season here, he did very well. We all know what Nigel has got in the locker.
"If you'd have asked anyone, even Nigel going into this year, whether he would be signing a new contract before Gerard Houllier took over, it would probably have been 50-50.
"But now, looking at the way he is playing, he is enjoying himself and it should be there or thereabouts done."
With Petrov and Fabian Delph both on the injury list and Mark Albrighton suspended, Sidwell and Reo-Coker are likely to be the combination for Sunday's derby clash with Birmingham.
Sidwell said: "Myself and Nigel go back a long time, obviously playing against each other from my Arsenal days and his Wimbledon days, and we used to play for the same borough.
"I've grown up knowing Nigel a long, long time. If we play together hopefully we can gel quickly and settle in and get results for the team.
"It is all about opinions. You don't play under certain managers. Under certain managers you do get a chance. Once you get a chance it is about taking it and staying in the team.
"At the minute we've got Stan (Petrov) out and Fabian Delph out, while Marc is suspended so we are a bit shy on numbers.
"But we've got enough quality in the team to dig deep and get us through it."
Sidwell insists Villa will be fully recovered for the derby clash despite needing extra-time to overcome Burnley in the Carling Cup on Wednesday evening.
The former Chelsea player said: "We knew it was going to be a tough game. As the game progressed with no goals going into the second half, we knew it was going to be tough.
"With the equaliser at the death, we knew we would have to go into extra-time and dig deep and we did that.
"It's not ideal before Sunday but we are fit, we are a young and vibrant team. We'll rest up and recover well in time for Sunday's game."
Left-back Stephen Warnock will return from suspension for the meeting with Alex McLeish's side at Villa Park.
But striker Gabriel Agbonlahor, right-back Luke Young and Petrov will all be missing through injury.
Houllier will also check on the fitness of striker John Carew who was a late withdrawal against Burnley through illness.