Can you help me set-up my external hard drive so that it functions as my iTunes? There is much more to this. See inside..

This is what happened. I set up my external hard drive so that it had my current itunes library, and then I proceeded to add my CD collection, one by one, into the iTunes in my external drive. I put about 250 CDs into it, and then there was an iTunes update. I tried to do the update through the external drive; meaning I accessed the update through the iTunes in my external drive, or so I thought. When I tried to access iTunes on the external drive it gave me an error saying it is a new version of iTunes, or maybe it said older, I can’t remember. Well the point is that after the update, it appeared that all the music I had put into the external drive was in my actual computer hard drive. But, no. The album art and song lists are there, but I cannot access the music. It tells me to search for it in the computer. But it is not in the computer, it is in my external drive, but I cannot access it. Ahhh! Does that make any sense?

To update the computer it has to shut-off. Is this the problem?

So, what do I need from you? How can I make it so that my external drive will be my primary itunes. I do not want all my music on my computer. It will just take up too much memory, so I want my music and eventually video collection (one thing at a time) on the external drive. How to get past this update problem?

Help!

Computer: MacBook 10.5.6/2.2 Ghz Intel Core 2 Duo/2Gb 667 MHz DDR2 SDRAM (If that means anything.)

External drive: Western Digital My Book Studio Edition/500 GB/Go