Leopard can't find home folder

Question

I moved my home folder, using Apple's instructions, to an external drive.
It is located on a partition on a western digital my book studio 500GB. There is nothing else on that on that partition.
I turn off my iMac last night and came back to it this afternoon. When I booted it up, and entered my password, it loaded what seemed to be, a version of Leopard that you would see when you reinstall the system. It had the standard background and dock icons etc. However, the home folder had only 3 items, Desktop, Library and one other folder I can't remember.
I did a bit of investigating and found out the home folder with 3 sub folders, was in fact on the main HD.
I opened a finder window of the Home partition, cmd clicked on the top of the window to show the path, and instead of being "My Imac>Home>" it was "My Imac>Volumes>Home"
The level: Volumes was in a lighter font, I presume indicating it is a hidden "folder".
I went into system preferences>accounts, unlocked it and right clicked on my account, into advanced options (this is the way I told it originally where the new home folder was) and saw that in had the home folder in /Volumes/Home 1/Alex
Alex is the name of my home folder.
I hit choose, and relocated my home folder, but this time instead of Home 1, it had Home 2.
I restarted and when I entered my password it brought up an error.
*You are unable to log into the user account "Alex" at this time.*
*Logging into the account failed because an error occurred*
I tried a few times but no joy.
I inserted the install disk and repair permissions and the actual disk of both Macintosh HD and Home. I also repaired the entire HD that Home is located on. It said all drives were fine.
After restarting it logged on but to the same state as before. I re-did all the steps and tried again. Back in circles. Except repairing the disks didn't work this time.
I hooked it up by target disk mode to my MBP and created the necessary folders to simulate a home folder (leaving the library folder as it was) but this didn't help.
My best diagnoses is that the iMac thinks there is a volume called Home 1 (or 2 or whatever) and that is where the Home folder should be. But in fact it is just on the drive Home.
Anyone have any ideas how I can fix this?
I tried ringing Apple support, but aside from telling me that you can't move the home folder, or tell system preferences where it is, and leave me on hold for ages while he sees if my iMac is within its 90 day phone support, they did nothing. Oh and it took 15 minutes before he understood I wasn't having trouble resetting the password. They should really have a few levels of support, noobs, the average joe and guys who know what they are talking about to a pretty good extent (i.e. me)
I'm not great with terminal but have used it a bit with very clear instructions, so go for any suggestions and I'll have a shot
Regards

Answer 1

Ye I did that but no joy, different password still doesn't work.
Without trying to sound ungrateful at all (your very helpful ) and also to save your own time replying, I am pretty well aquatinted with OS X and stuff like resetting the password, I find, is pretty straight forward Again, your input is greatly appreciated and most stuff with troubleshooting is fine (root user, passwords, DU, Install disks etc) terminal and the very obscure or unused utilities may not be as familiar but are still OK Hope I didn't offend you
So really my biggest task now is to get into the system and change the Home folder location, something I can't do via target disk mode etc.
Regards