Are you still getting the same error message (permission denied on mkdir) after you made post #3 or is it a new/no error?

I can make test posts and I get no errors - the front page just doesn't update.

Your old imported posts do show though? (I'm not an MT guru by the way, never used it...so maybe it ain't even worth answering my questions, then again maybe it'll help with background should a MT person come along.)

Is the template for your home page set to rebuild with indexes?

If you look at the list of templates, you should see a check mark under "Built w/Indexes." If there isn't a check mark, edit the template and check the box next to "Rebuild this template automatically when rebuilding index templates."

Yes, it is check marked yet it still does not want to update.