The iTunes Library file cannot be saved. The disk could not be read from...

Screenshot of error message: http://i49.tinypic.com/2ecp3sw.jpg
I tried deleting my library file and starting over with a new library, reimporting my music. Then, once again, I get this message:
"The iTunes Library file cannot be saved. The disk could not be read from or written to." with a checkbox that asks if I would like not to be warned of this again.
Information that might be relevant:
My iTunes files (everything but the application file) is located on my external HD (formatted for mac and has only been used on macs) and is connected via USB.
The external HD makes noises whenever it tries to save the library file, so it's obviously trying to write to the HD.
The iTunes folder creates a temporary file every single time this happens, but it is gone once the error comes up.
None of this happened (after reimporting my music to the new library) until I turned Genius on. Turning Genius off and deleting the Genius file hasn't stopped it, either.

ok--same scenario but
Running Disk Utility says:  Error: Disk Utility can’t repair this disk. Back up as many of your files as possible, reformat the disk, and restore your backed-up files.
Trying to drag-drop the iTunes library folder from the ext HD to the internal MacBookPro HD gets: "The Finder can’t complete the operation can’t be completed because an unexpected error occurred (error code -50)."
DiskWarrior was able to access the drive and created a preview drive, but said: 
DiskWarrior has successfully built a new directory for the disk named "My Book." The new directory cannot replace the original directory because of a disk malfunction.!   It is highly recommended that you backup all of your data from the preview disk.!   But when I try to transfer (off either the MyBook HD or the DW preview version of MyBook I get:  The operation can’t be completed because the item “xyz” is in use.

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