Puzzling. I think I am following your explanation. Have you quit iTunes since making the preference change with respect to the location of the library? If so, have you tried deleting the “My Documents” version of the XML file, renaming or moving it?
Try one or both of those to see if your rate of success improves.
Not being a regular user of that platform, I am not sure how well the Windows version of iTunes handles symbolic links… er, "Shortcuts". 🙂 However, if all else fails, you could delete the iTunes directory in your My Documents folder; instead creating a "Shortcut" to the iTunes directory on the "N:" drive.