Yes, most definitely the thing that you are not understanding is that it is impossible to do what you want to. It just can't be done, because the files that you have published on GoDaddy are html and css files which equal a published website and iWeb can do nothing at all with these files, so you can use iWeb Switch Domain until the cows come home, but it won't work because you are trying to use the app on files that won't open anyway.
iWeb has no import facility, which means that it cannot open a site that has already been published to a webhost, so html and css files and the files that you have downloaded from GoDaddy are published files, so no wonder iWeb can do nothing with them.
They are not the same as the domain.sites files that you have on your Mac - the domain.sites files are just that, files that store iWeb data and iWeb is a one way street, so once published and all html and css files created, it CANNOT import back, so unfortunately you will not be able to achieve what you are trying to achieve in any way shape or form.
If the copy of your site in iWeb that you have on your Mac is not the latest version that is published, then what you need to do is open the domain.sites file that you have on your Mac and update this version so it looks like the published version. It is a bit more work for you, but you have no other alternative because what you are trying to do will never work because iWeb has no import facility.