Can't use iPhoto/updating thumbnails/original can't be found

Question

I haven't used iPhoto in a long time, and have rarely ever used it, have always found it counterintuitive and unnecessarily difficult.  The last time i used it was probably in the past 6 months and it worked OK.  Today i'm having a new problem that i can't fix, hoping someone more knowledgeable can help me.
I opened iPhoto because i was going to try using iCloud for storing photos. The "beta" iCloud Photos opened and said that i would have to turn on Photo Library on my iPhone. I looked at that and it said "automatically upload and store your entire photo library in iCloud to access photos and videos from all your devices."
I'm not sure i want to do that, i don't want all my storage used up.  I googled "Can i store selected photos on iCloud photos," to see if i can choose which photos in my photo library i want to put on the cloud.  I got a link to an Apple Support page which was titled My Photo Stream FAQ.  I was reading the beginning of it and it said i needed to have iPhoto v.9.2 or greater.  So, i clicked on the iPhoto icon in the doc to open it and see the version number that way.
That was the beginning of the trouble. 
I can't remember the whole sequence of what happened, but at the beginning, i got a message window telling me that there were problems with my data directory, it didn't use those terms but something about inconsistencies between different things which it said  could cause problems, and one of the options was a button that said Repair.  So i clicked on Repair. 
Then i got a small window with a progress bar that said Updating Thumbnails.  Pretty soon after that, i got another window, a message window that said something like "Alert  -  The photo “IMG_9673.JPG” could not be opened, because the original item cannot be found."  The two options were Cancel or Find Photo.  I clicked on Find Photo, a window opened with a field to type the name of the photo but iPhoto had taken the window away that had the file name, so i had to close out and wait for the window to come back. Then i memorized the obscure file name and put it in the search field after clicking Find Photo. Nothing happened. Nothing was found or not found, there was no response and no button to click on.  there was no way to use that window to search with.  There was a grayed out "open" button.  What a waste of time.  This is why i don't use iPhoto. 
So, then i used the Finder Find file window and typed in IMG_  because there were a lot of them, not just a few, so i wanted to find out where they all were and maybe i could just delete them. Find file showed that a lot of them were in Mail, apparently mail attachments, and there was a total of over 4700 of them.  So, there was no way i was going to be able to click Cancel 4700+ times, this was a very slow process, each time, there was an extended pause until the next window with 'cancel' came up, and of course, it would be too easy to have an option to apply the choice to all.  That didn't exist. I couldn't do anything functional with iPhoto, everything was grayed out, including Quit. I used force quit.
i tried restarting iPhoto, the same thing happens, i got the same 'updating thumbnails' and 'Alert - original cannot be found'.  One time, i got the original  "you have inconsistencies" message and the options to repair or or cancel, and i chose cancel this time, but it still brought up the Updating Thumbnails/Alert - can't be found' windows. 
Each time, i force quit. 
Is there anything i can do?  i don't want to reinstall the whole system.  Is there something somewhere i can throw in the trash?  I do not want to have to reinstall the system software for a program i rarely if ever use because i find it so difficult.

Answer 1

Terence--thank you for the reply.  To my knowledge i haven't ever done anything with iPhoto preferences to change it from the default. i have very rarely used iPhoto because i have found the interface difficult and awkward.  Because i use it so little, i would've had no reason to change the preferences that i can remember. i certainly would not have known anything about the options you describe and would not have selected a Referenced Library because i don't know where else i would put the photos. I have been managing my photos on the iPhone for the past 5 or 6 years, and before that, i used a Canon photo management program. i mostly store my photos on the phone but i email photos to my computer in order to post them on facebook etc, before that became easier to do from the phone . i would edit photos in Preview or on the phone. I have barely used iPhoto. i think occasionally, i sync the phone photos with the computer as a back up.  That would account for there being a lot of photos in the iPhoto Library, maybe.  As far as i know, i have the default settings on iPhoto.
I used iPhoto a couple of times in the past year, to find some old photos, and the program opened normally.  Today, it did not open normally but gave me the message about having some inconsistencies and asking if i wanted to repair them, which then led to the Updating Thumbnails window, which then led to the Alert - The photo could not be opened because the original could not be found message window.  Nothing else opens.  There is no functional  iPhoto at this point. I can either open it and look at a screen with those messages on it, or i can force quit it.  I can't check the preferences settings, not from within the program.  
I searched for the IMG_ files and found about 3000 of them and put them in a photo on my desk top.  Does that mean they are in a Referenced Library? 
Do you know of any way of getting this 'updating thumbnails' process to stop?
There was a time when dragging a plist file to the desk top or the trash could help to fix problems, and i was hoping there would be something like that  i could do. i don't know what changed since the last time i opened iPhoto that has caused this problem that i have not had before.  Maybe it was after the change from Snow Leopard to Mountain Lion.  I can't remember.