Thank you for the feed back on the documentation, I will forward your comments to the documentation team and we will review the documentation.
to address your points:
You should start on the Local Info Tab.
enter your local path and the correct HTTP Address to your site.
If you start on the Remote Info Tab and enter you FTP Details, Dreamweaver will try to "guess" at your sites URL, and incorrectly add it using the ftp address.
The HTTP Address should be a valid URL to your site:
you should be able to take the address entered fort the HTTP Address and put it in the address bar of a browser and browse to the site.
After completing the Local Info section, progress to the remote info Section.
For the Host Directory, adobes recommendation is correct, use the directory that the hosting company provides you as the directory that the files are to be published to.
On the testing server tab set the URL Prefix to use the correct URL to connect to the local site.
The alert that you are mentioning:
will only have a bearing for site relative links:
"This may cause pages using site relative links to display incorrectly at runtime"
it will only come into play if you have set the "Create Links Relative To" option on the Local Info tab to "Site" instead of "Document". this should be avoided since it will cause problems with PHP.
The two main Site definition settings that effect Menu Writer are:
Local info: HTTP Address
Testing Server: URL Prefix
When entering these in the site definition, make sure they are correct and that you can enter them into a browsers address bar and get to the correct place.