OK - So I am a bit more relaxed now...
I went through these forums again and found a few other people who had this issue. I gathered that the best thing to do was move all of my files to a new folder called "NEW SITE".
NEW SITE sits on the root folder now with another folder which I am assuming is godaddy's since I cannot delete it (called stats).
I gave NEW SITE and all the files and folders within NEW SITE the 777 permissions. This process took a few minutes.
I opened a new browser window and directed the browser to NEW SITE and once there, the checklist popped up. I hit start and again #1 and #2 are fine, but I still have a File Permissions error.
I went to check my PHP version with godaddy and it says "PHP Version: PHP 5.x "
So I know it can't really be any of the PHP version issues I read about which may also be a reason for this...
SO at what point does someone call me OR do I just give up and get my money back guarantee??
I do appreciate your help.