Music File System mixup

A while ago I bought a USB attached hard drive to store all my music. I started by taking a backup of the iTunes directory from my MacBook, I then copied it onto the empty hard drive. I then changed the settings on my MacBook to point to the new hard drive. All seemed good.

Over the next while I copied about 350 CD's, importing the songs into iTunes. That too seemed fine. But iTunes started to lose songs from its library. When I used Finder to look at the hard drive I found a really scrambled file system. At the root of the drive there were four artists and their albums. Then there was a directory called iTunes. In it were a lot of artists and their albums and tunes alphabetically until I got to the letter "I". There I found another directory called iTunes Media". Inside that is another directory called "Downloads-Music" containing a bunch more artists, their albums and songs. Further down in the iTunes Media directory is another directory called "Music" which contains duplicates of the artists and songs in the top-level ITunes directory and a bunch of others. Then the listing shows more artists under the top-level iTunes directory until I get to the letter M where I find another directory called "Music1". It contains a directory called Media with more artists, etc.

When I look at Music/Preferences, the Music Media folder location is set to "USB Drive/iTunes/Music1/Media". I did not set it to this - I didn't even create the Music1 directory. My guess is that now iTunes is only seeing the stuff in the Music1 folder and its sub-folders.

How do I rectify this mess? I simply want one place to put all my music and be able to reliably play any selection.