After searching for hours online, and then reading this thread entirely, I'm now completely convinced this is a screw up from Apple, and that the home sharing option destroys your library.
I have had an existing itunes library hosted on my dropbox for over 6 years. Worked flawlessly and all I have to do is make sure that any computer (mac or PC) uses that library. I made sure the itunes media folder is always in the root (not buried) and it worked perfectly, updated the library and playlists dynamically across 2 macs a PC.
The problem (disaster) came when I wanted to add some music to an ipod and ripped some CD's on a new laptop and they were saved locally instead of to the dropbox library. Simple enough fix though right? According to apple: export the playlist and copy the media files over to the dropbox folder, then import the playlist.
Wrong. Didn't work no matter how I tried it.I tried locating the file and it just won't work.
So apple's official solution is to use home sharing. Why? Because the ipod was registered to the imac, but the new songs were on the laptop (again, let's remember the dropbox solution would be fine if I hadn't forgotten to use the dropbox library rather than the default local location when i started using itunes on the laptop). I believe this is what screwed me. I switched it on home sharing and yay! it let me access both playlists by using the little selector in the top left corner. So I tried copying the playlist from one to other. Physically impossible - Itunes does not allow this function. OK, so basically home sharing is really only of any use if you're paying directly from your computer. Completely useless for getting music from one computer to another or god forbid, on to another device, like an ipod.
So I try repointing the laptop's library to the dropbox itunes folder, as I'm thinking let's just have the master sing folder and I'll copy the new music locally from my drive to the dropbox folder. Great, it can see the tracks in laptops itunes now but when i go to play them I get the dreaded "can't locate files" with the little exclamation mark next to them. So i try to locate them and use the "try to locate all the other files using the same location?" Sure.
Then disaster: Suddenly most of the songs in my entire library have the exclamation, not just the new ones. in other words now my old and perfectly fine itunes library has magically deleted or moved all of music files. And as other people describe in this thread, some are in completely random locations, and some just gone altogether.
I was able to however to use the locate function for the new music from the ripped CD's on the laptop (although one track just straight up disappeared), so now at least I haven't done all that ripping for nothing. But my entire historical library is a giant mess and some music files just gone.
After hours of trying everything I figure out a solution. The music is still all on the ipod and I used a program called iRip to pull off the music and playlists off the ipod in to the laptop (now pointing to the dropbox itunes folder) and voila! I have all my music back. I'm not affiliated with whoever makes that program and I'll also admit it was a bit buggy (it stopped halfway through the original import so I had to start again from where it left off, but got there in the end).
So if you're library gets messed with and you have all the content on another device, such as ipad, ipod etc, just rip it all off the device back in to a new itunes folder and away you go!
It boggles my mind I have to use a third party program to get my music back, when apple messes up the file locations. This is one of those cases where copyright protection infringes and restricts on someone who has actually legally bought their music.
One other thing I would note is that i think the "allow itunes to organize your library" option COMBINED with home sharing is what screwed my libraries.
The reason I'm sharing this is that there are over 100 threads on this and hopefully this will help someone else!