1. passwd: difficult to see what the problem is. Its worth noting Unix/Linux is case sensitive(!) for everything.
I'd suggest doing
as root and creating a very simple passwd eg abc for now, just to prove it.
As above, you can't use the useradd -p unless the 'password' you supply is already encrypted.
Use one of the other methods and supply the plain/non-encrypted version.
2. home dir; the usermod cmd edits the /etc/passwd file only. To create the dir (or move it if it already exists), you'll need the -m option. See man page http://linux.die.net/man/8/usermod