Here is an update.
There were about eight files with case sensitive names (most of them xxx.3ssl.gz files in the man3 folder and one mailbox file) I went into time machine on another boot volume and deleted the case sensitive duplicates and then was able to restore from my backup.
Root was still messed up when I restarted so I opened the workgroup manager, selected my root account (show system accounts), and then switched it to not use open directory. I then restarted, went back to workgroup manager and switched it back to open directory and typed a new password. Has worked fine so far.
When I restored I restored to 10.6.7 so now it's time to (after I run a TM backup on my newly reformatted NON case sensitive drive and clone the working system to my new clone drive) re upgrade to 10.6.8 and see if I need to try the Open Directory trick again, or if things will just work.
Saved a bunch of money and time (unless you take into account that I could have brought this all in a week ago and they MIGHT have figured it out by now).