How about in the interim you grab some third party utility to back everything up?

It does sound like some preference file was damaged or deleted while you were purging your profile folder.

There's this thread: http://en.kioskea.net/forum/affich-105068-itunes-wants-2-delete-all-my-songs


BTW, the odd thing is that I recall a prompt to erase when you set up AUTO sync, but not when you choose to go manual.

Have you tried creating another user account with its own set of iTunes prefs and then taking a look at this from there?