I have successfully moved all of my itunes media to an external hard drive. Every time I restart itunes, or my computer, it changes the location of my itunes directory back to my mac!!! I have to 'update itunes library' and then 'keep itunes organised' every single time! All my files are on my external drive, I have changed the directory location of the files to see if that solves it but it seems an iTunes issue, not the files or the drive. The drive works for everything else I use it for and other software doesn't lose their respective files. Help please?
Make sure you mount the hard drive before you open iTunes. If you don't, iTunes will exhibit the exact behavior you're seeing now. (I have this exact configuration and it works fine for me, so don't despair, it can and does work!)