Advice/suggestions please?

First off, I am so glad I found this group! :) It is very imformative. Now on to my question.

For less than the amount we are paying for rent, we could be paying for a house (monthly payment and insurance). We live in a place where houses are fairly cheap, and it would be pretty easy to get first time homebuyer's assistance (no/low down payment, etc.). Sounds nice, right?

Last year, we lived in another state, and were looking into buying a house there. We looked into what we could afford, went to the first time homebuyer class, all that stuff. We then went to the bank to get pre-approved for a loan. They knew it would be a first time homebuyer thing- so no down payment, and we were pre-approved for $110k.  We were all excited, looked a few houses and found a house for under $100k that we really liked. We put in an offer, got approved almost immediately, and were so happy that everything was happening so quickly.

Right after the offer got accepted, we went back to talk to the bank, and they basically un-approved us for loan. You see, my husband has a thing on his credit report saying he owes a credit card a substantial amount of money (about $2500).  The thing is, neither of us have credit cards, and he had some problems with his "friends" stealing his identity when he was in his late teens. We know for sure of some stolen checks and a phone account opened in his name, and we suspect that this credit card thing might be done by the same people, but we don't know for sure. The bank said they would still be able to work with us but not under first time homebuyer, and we couldn't afford a big down payment then, so we were pretty much out of luck.

 In the year since, we did contact all 3 major credit reporting agencies and filed to have it noted that the credit card was identity theft, and they all did so and removed the card thing from his credit report. But of course, it can't be that easy. The place that says he owes money sent the debt to another company, which I think will make it show up again on his credit report- I still need to check. The statute of limitations on credit card debts in NH (where the credit card supposedly was) is 3 years, but this thing didn't show up until late 2006 for us. We had never received a bill and were shocked to see it on his credit report. When we called the debt collectors, they had no proof that the card was indeed his- they don't have any information on when or where it was used or what was purchased. Now we are receiving bills for it every so often.

 Ok, so I guess here's the real question. Is there any way to remove that from his credit report? And is that going to limit us from trying again to get a loan or are they going to see that it was removed and marked as suspicious? I have very good credit but of course they look at both. We are expecting a baby soon and if we could buy for cheaper than renting, we would really like to look into it. We would be looking into a first time homebuyer's thing again. People keep telling me that I should look into it, but I am wary to try again, especially after last year. I really don't want to go through all that stress again! Any suggestions or advice would be much appreciated, and I am sorry this is so long!