To resolve this we will need details. I don't know exactly what is where. Even though it "worked last time" I see people post with that and almost invariably there is something different in the scenario this time.
The iTunes application alone has no idea where media files are. You could drag all the media folders you like to the Media folder and it won't know. You could "point" iTunes to that folder in preferences and it still will never look there. iTunes knows where files are because as you add them to iTunes it puts them in the Media folder and makes a note in that .itl file where the files are located. When you try to play a track iTunes looks up in the .itl file which media file it should try to play when you request the track and goes to that location to play the file. If there file isn't there you get ! You have to mend the links one by one, or iTunes might try, based on you repairing links. to repair other links, but it doesn't usually work that way and is only partly successful at times (as we have already discussed). If you have ever walked into a store and see an empty shelf but their web site says they have 3 in stock and the sales person says all their stock is out on the shelf, iTunes is like that.
Here's a bunch of links on how iTunes works. As you can see, an entire library is a whole bunch of files and support folders working in concert and when they get split up iTunes starts misbehaving.
What are the iTunes library files? - http://support.apple.com/kb/HT1660
More on iTunes library files and what they do - http://en.wikipedia.org/wiki/ITunes#Media_management
What are all those iTunes files? - http://www.macworld.com/article/139974/2009/04/itunes_files.html
Where are my iTunes files located? - http://support.apple.com/kb/ht1391
iTunes 9 [and later]: Understanding iTunes Media Organization - http://support.apple.com/kb/ht3847 - plus supplemental information about organizing to new structure https://discussions.apple.com/thread/6477809?answerId=26404702022#26404702022
Image of folder structure and explanation of different iTunes versions (turingtest2 post) - https://discussions.apple.com/docs/DOC-7392 and making an iTunes library portable.