Chain too taught then too slack - help?!

Damaged? Probably not, but it's very likely that it's not centred exactly on it's bolts. If you loosen them off you'll probably see it move slightly as the chain pulls it back. I expect pulling your wheel further back has just exacerbated an issue that was already there. It's a common problem as chainrings are never perfectly round and/or centred.

I think Sheldon explains it all via this thread...?

http://www.lfgss.com/thread23972.html

Pretty much this and what Murtle said.

I had similar problems and it did the trick nicely. Just loosen your chain ring bolts a little, to the point where you chain is tight you whack it carefully it will sort itself out. gently turn the rear wheel and keep doing same thing until your just tapping the chain gently and it's even tension all the way round. Then tighten chainring bolts. Should do the job and yes, don't over tighten your chain. Easy done with all slack chain remarks on'ere ;-]