The "multiple installs of Steam" error is from putting the full path to your hl.exe in the Game Executable field. The $game_exe variable ALWAYS uses short filenames, even if you check the 'Use long filenames' box. Steam, on the other hand, appears to only handle long filenames. So hl.exe is launched, Steam doesn't recognize the the path, so it thinks you have more than one copy installed. So it's Hammer's fault for not the path correctly with long filenames, and it's Steams fault for not realizing that the short name path is in fact correct.
The solution is to change your Game Executable field (on the Build Programs tab) to read JUST
hl.exe without ANY path at all.
And I don't know why I wasted my time writing this all out when I could have just referred you to my
Hammer with Steam guide!!!! (grrrr) oh well, guess I was bored...