I solved my problem and I've just registered on here to pass on what I know to try to help other poor souls that have this issue. I havent got the perfect step by step solution but hopefully it will help.
So yes, I decided to use my Xbox to view photos on my PC via the Extender thing & Windows Media Center.
Big mistake, WMC is really slow and laggy and basically useless so I have since discovered on other forums.
By doing this it locked my USER folder (a little lock appeared on my USER folder name)
I got the message you are all getting, folder or file locked etc..
I searched all the forums and tried various things. no one thing was the magic solution.
What I can say is that it's all to do with ownership of a) your own folder and b) the Itunes library file.
I think the zip file above could be useful as a starting point. However, it did NOT change all the permissions correctly for the itunes folder.
check who is the owner of your itunes folder/files.
go properties, security, advanced, ownership << and check that you and not some other thing is the owner of the folder/file. you can manually amend I think.
check also properties, sharing < to see if the folder/files is shared with everyone, mine wasnt.
someone said that you should go to the itunes library file and go: general, advanced and untick the two things: under file attributes. I did that and it might have helped. but note: now that my itunes is working, both are ticked again so could be a red herring.
someone said, do a couple of check disk jobs. Media Centre locked drive - Microsoft Answers
my USER folder seems to become unlocked at this point (although it might have been other things I did). worth doing though
NOTE! I was
able to run itunes via Admin control. Start/right click on itunes.exe and run as a admin. I was also to sync my iphone and everything. so this was a relief but of course the original issue wasnt fixed but as least I could sync.
I had not removed WMC at this point, but I DID click on Start Menu and EXtras in WMC and untick the box that says that it will control all media. worth doing and saving.
my breakthrough was cut/pasting the itunes library.itl into another new folder within the itunes folder so that itunes couldnt FIND the library file and hey presto, itunes opened via my normal user account
but it did have any music listed of course. I then ensured the the old library file was properly owned by me and is shared. then COPIED it back into the proper location. started itunes and by some miracle, it worked.
system restore didnt work for me
I never reinstalled itunes during all this, dont bother
my USER folder still has "read only" ticked, but I can use it normally. weird.
I still have WMC installed
I never tried to mess with Administrator account stuff or login as Admin. My user account has admin privileges.
I never touched my anti virus (Zone Alarm) during all this
good luck all.