I found this article that, pretty much, describes my problem.
It gives 3 scenarios for "continue log in"/"Create New Keychain"/"Update Keychain Password"
Directories are wiped with each user with a script I created. However, the next user that logs in gets the above error.
I'm sure it's a permissions problem with the way my script recursively resets permissions on the users folder, however - what I'd like to know:
...is there anyway I can "script" in a default answer: CONTINUE LOG IN
For now, I just want a quick work around.