Did you originally have your User directory on a panther machine? I remember that in the Panther->Tiger transition they moved the location of the automounted partitions, which caused no end of issues for software that translated stuff like /home/user to /private/var/automount/home/user.I don't have permission to read the new package format of the iPhoto Library.
Now note, I do have permission but it I don't think it likes that my home directory is /private/var/automount/homes/"username".
It isn't the first time that applications have broken like this. I'm looking at you Adobe.
FYI I have iPhoto running on a machine with an NFS mounted home directory in /private/var/automount/home/user, and it works without issue for me. That said, I have admin access to my computer!