I've just found a solution to this problem, a big thanks to David Burwell:
Close iMovie
Back up iMovie files just in case we blow something up!!!
Download "Plist Edit Pro" from Apple (see below)
http://www.apple.com/downloads/macosx/development_tools/plisteditpro.html
Go to the folder where your iMovie Project is stored, mine was at...
User/Movies/iMovie Projects
Right mouse click on the Video Project (mine was called Rachel Video)
Select "Show Package Contents" from the drop down menu
You'll see a number of Folders and Files
Right mouse click on the file called "Project"
Select "Open With" and browse to the "Plist Edit Pro" file you just downloaded (if you don't already have it)
Expand the $objects list
I scrolled down until i found the missing music file (Ship.mp3 - it will list the entire path)
If you know the file name you can Edit/Find it instead
Change the location pointer of the file (new path and file name)
Select File/Save from the Plist Edit Pro menu
Quit Plist Edit Pro
Open the project in iMovie