Exactly what i did is what i described.
If you had an existing iPhoto library and iPhoto suddenly acted like there wasn't a library any more, then you
must have done something else. What you described just removes the shortcut from the sidebar, and does not in any way affect the original.
Click on your home folder in the sidebar of a Finder window. You should be given a listing of folders to the right that include things like Desktop, Documents, Downloads, etc. Is Pictures in that list? If not, we need to determine where it went.
If it is in that list, look inside it. There should be an item in there called iPhoto Library.
Now, you say that you let iPhoto make a new library when it failed to find the old one. That is a VERY bad thing to do... if you find that data is missing somehow, you should
NEVER just proceed with business as usual. The first order of business should be to figure out what happened. By allowing iPhoto to make a new library, you have muddied the waters, since it may have re-created both these items if you somehow moved them. If the library had somehow been damaged, then re-creating it could potentially destroy the old one.
Try searching your computer for "iPhoto Library" and "Pictures" and see if you find just one of each or two.