Shared iTunes library, store purchases by more than one user

I'm after some advice about a shared iTunes library. The folder is on an external hard drive. There are two user accounts on the Mac and they both make iTunes store purchases. I have had permissions errors for user #2 when trying to add downloaded songs to the library. I noticed the 'Ignore permissions' option was unchecked, but enabling it does not fix the problem (probably should've done it first).
So user#2 has some downloaded songs in a different directory. I'm at the point where I need to bring everything into one shared library folder, on a permissions-ignored drive, making sure both users can download their individual purchases to the same library. Both users also have an iPhone that they would like to add music from this library to. Am I running into any potential problems - even if I backup the music data and begin from scratch?

Use separate Windows user accounts, or press the Shift key when launching iTunes and create a second library.
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