ITunes, external drive, local drive, and iCloud and Match- help!

I have a 2011 Macbook Air as my primary machine. Given it's small sized hard drive, I don't want any music or media to be on the local machine (if possible. So, I've done a few things over the years:
(1) I have, inside iTunes, the default media location set to be a folder on my external thunderbolt drive.
(2) I have iCloud support for iTunes turned on
(3) I have iTunes Match turned on
My iTunes library is split 70/30 between music and movies/TV shows. My household has iPhones and iPads and I need all this content available to all the devices.
Ok, given the above factors, things seem to work pretty well. The iTunes folder on my external hard drive is about 145 gigs (about right I would think). But as it turns out, I have a iTunes folder on my local drive as well, in the "Music" folder per the Favorites section in Finder. This iTunes folder is roughly 36 gigs, so barely 1/5th the size of the folder on the external drive.
So, I backed up the local iTunes folder (onto the external drive), and then deleted it off my local machine. iTunes started, and it played music and movies, but a few songs (picked at random) could not be found, and iTunes would try to communicate with Apple for iTunes match, but this process would stall...and the app would eventually crash (within 10 minutes of starting...even when music was playing). It didn't completely close, but it became unresponsive. Moving the smaller iTunes folder back to its original place on the local drive seems to have fixed this issue.
Ultimately I'd like to clean off the local drive, use the external drive for whatever "local" storage I need for iTunes, and rely on iCloud and Match to provide the content to the mobile devices.
Can anyone assist?

The first thing you need to do is properly move the iTunes media off the internal HDD of the MBA to the external HDD. This KB article will help you with that: http://support.apple.com/kb/ht1449
To use iTunes Match exclusively for streaming music the best practice is to create a new iTunes library and enable iTM on that library. This has the advantage of leaving the original library untouched. To create a new library quit iTunes, then launch it while holding down the Option key. Choose "new library" in the dialog. Do not have iTunes scan for media; then enable iTunes Match on the new library. Once the initial scan is done you will be able to stream the music.
You will need to have a backup scheme in place for when you add new music to the library as well.

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Regards.

ITunes, external drive, local drive, and iCloud and Match- help!

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