It's been a big ball of weird for 3 days (John the Fisherman?)
On the Disk Utility, it would periodically show 1 title or 2 titles. No rhyme/reason. It would never let me erase it.
Oddly, twice in the past 3 days I got an error message pop up out of the blue saying basically "your drive sucks but we're allowing you in for a brief period of time so you can try to recover things". Last night, I caught this window and successfully pulled out the couple of files (personal movies)! So I got what I needed out of it.
Then this morning, I go to erase again and it actually let me! Just a few minutes ago!!! So it did that and asked if I wanted to run a time machine backup!
IT'S BACKING UP RIGHT NOW!!!

It even showed the external in the Time Machine settings and everything. Course - I can't trust the darned thing anymore but at least it's functioning till I can get a REAL backup system.
John - So you are saying I shouldn't have done a TM backup but more "cloned" the iMac to the external? I don't think I can clone? it with SuperDuper AND do a TM backup on it as it's only 500gb and my iMac is about 230. Or can I? But should I stop and erase my TM backup and do as you say now?
Figuring out backup systems is quite hard and morphs into the Home networking arena which is so not my thing. My husband is in charge of that and also the 14k+ iTunes library which is REALLY in need of backup help. I think maybe the OWC Maximus RAID 1 or the Silver version for that but it might be overkill for me. IDK if we can both use that machine without a mess. I have an AEBS with 2 500gb Buffalo Nas (or just one)? And I'm super-unclear how to properly tie them all together cleanly. There was a TC on Craigs that I missed out on and that almost made me cry as my goal is to wirelessly back up this iMac as it's in a living space and I don't want a drive on it all the time ideally.
My husband better give me props when back in town from his trip for getting this external to work don't you think? Maybe running the TechTool Pro & Diskwarrior on it (despite showing as FAIL), did 'something' to it to allow the Erase.